Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 24-25 October 2018:
Incoming data, while somewhat weaker than expected, remained overall consistent with the baseline scenario of an ongoing broad-based economic expansion, supported by domestic demand and continued improvements in the labour market. Some recent sector-specific developments were having an impact on the near-term growth profile. There was evidence that uncertainties surrounding trade were affecting business.
The risks surrounding the euro area growth outlook could still be assessed as broadly balanced. However, the threat of protectionism, vulnerabilities in emerging markets and persistent financial market volatility remained prominent.
Headline inflation had increased to 2.1% in September and was likely to hover around the current level over the coming months. Measures of underlying inflation continued to be muted. Looking ahead, underlying inflation was expected to pick up, supported by the steady increase in wages and the build-up of pressures at the early stages of the pricing chain.
This assessment called for patience, prudence and persistence in monetary policy. Accordingly, the Governing Council needed to maintain its accommodative monetary policy stance and therefore: (a) reiterate its anticipation that, subject to incoming data confirming its medium-term inflation outlook, it would end its net asset purchases at the end of December; and (b) reassert all elements of its forward guidance pertaining to the paths of interest rates and reinvestments.
Regarding communication, it was important to emphasise that the incoming information, while somewhat weaker than expected, remained overall consistent with an ongoing broad-based expansion of the euro area economy and gradually rising inflation, and to highlight that the risks surrounding the euro area growth outlook could still be assessed as being broadly balanced, although the risks relating to protectionism, vulnerabilities in emerging markets and financial market volatility remained prominent. Likewise, it was important to stress that the underlying strength of the euro area economy continued to support confidence that the sustained convergence of inflation to the Governing Council’s aim would proceed and would be maintained even after a gradual winding-down of net asset purchases. Moreover, it was essential to reiterate that significant monetary policy stimulus was still needed for a continued and durable convergence of inflation to the inflation aim and that this support would continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by the enhanced forward guidance on the key ECB interest rates. In this connection, Mr Praet emphasised that the winding-down of net asset purchases was not tantamount to a withdrawal of monetary policy accommodation.