ECB meeting minutes review: ECB On wait and see posture and Draghi urged unity on inflation aims

The European Central Bank released the minutes from their October meeting which suggested a wait-and-see stance and Mario Draghi signed off with a call for unity on its main aim of boosting inflation. They cut deposit rates further in September and started another QE (quantitative easing) programme. Former president Draghi said following the October meeting that his opponents had called for unity and said “bygones are bygones” after the previous month’s battles. Since Draghi’s departure at the end of October, new central bank chief Christine Lagarde has looked to renew bonds of trust among governing council members.

Takeaways from the minutes are as follows:

  1. Strong call for unity of the Governing Council was made at the October 23-24 policy meeting.
  2. Frank discussions are necessary but it's important to form a consensus, unite behind the inflation aim.
  3. Economic data raised the question as to whether weakness would continue for longer than anticipated in September.
  4. There was wide agreement that more information is needed to reassess the inflation outlook and impact of ECB measures.
  5. Measures should be allowed more time to unfold; confident they will support inflation.

At its October meeting, when the council decided to leave monetary policy unchanged, it stressed that it was ready to take more easing measures if required to achieve its main objective of inflation below but close to 2%. While there was “broad agreement” at October’s governing council meeting that monetary policy needed to be “highly accommodative for an extended period of time”, some members raised concerns about the side effects of ECB policies but strong commitment by the governing council to providing the necessary policy stimulus was seen as important to ensure the sustained convergence of inflation to the governing council’s aim.

The risks in the Eurozone are “still tilted to the downside, on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets. The transmission of the individual measures would take time to work its way through to growth and inflation dynamics but the latest data supported the projection of an upward movement in underlying inflation dynamics.

We expect, in the near-term the ECB’s call for increased fiscal stimulus, growing concerns about side effects of policy measures, and the ECB’s strategic review may slow down decision making and another policy package in March next year, consisting of a 10bp cut to the deposit rate and an additional €20bn per month of APP. The euro area economic outlook is weak and inflation is set to stay well below target, which merits more monetary policy stimulus. Since the last meeting, GDP growth and core inflation numbers came in a bit stronger than expected, but the PMIs are still at very low levels.


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