ECB minutes suggest little appetite to curb stimulus

FRANKFURT (Reuters) - European Central Bank policymakers called for a steady-hand approach at last month’s rate meeting, the minutes of the gathering showed, suggesting little appetite for dialling back stimulus while Europe gears up for high-stakes elections.

European Central Bank (ECB) President Mario Draghi addresses a news conference at the ECB headquarters in Frankfurt, Germany, January 19, 2017. REUTERS/Kai Pfaffenbach

Arguing that the recent inflation surge was temporary and threats to growth remained, policymakers were in wide agreement to continue with the policy of aggressive bond purchases, the minutes of the Jan 19 meeting showed on Thursday.

They kept the door open to more stimulus despite accelerating growth and even to changing the proportion of bonds they buy from each country if market conditions change.

With France, the Netherlands and Germany, three of the biggest economies, getting ready for elections, the ECB has been expected to remain on the sidelines, revisiting its stance only in the autumn and hoping to avoid becoming a political target.

Indeed, French presidential candidate Marine Le Pen has proposed leaving the euro while German and Dutch officials have often criticized the ECB’s easy-money policy.

“The Governing Council was seen as well advised to remain patient and maintain a ‘steady hand’ to provide stability and predictability in an environment still characterised by a high level of uncertainty,” the ECB said.

Rising prices have been a point of contention recently. Last month, inflation hit the ECB’s target - close to but below 2 percent - fuelling calls from conservative policymakers in places like Germany for the bank to curtail stimulus.

Two of six board members have also raised the prospect of policy tightening recently, either through tweaking the ECB’s guidance or by opening the discussion about the eventual end of asset buys.

Yet the minutes suggest little discord among policymakers, with “wide” support reported for a steady policy stance, including the bank’s guidance.

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Fighting super-low inflation, the ECB has bought over 1.6 trillion euros (£1 trillion) worth of assets in the past two years and plans to continue buying at least until the end of the year.

To ensure it finds enough bonds to buy in Germany, the ECB has started to purchase paper that yields less than its deposit facility rate (DFR) - a move that appeased some German critics but did little for the struggling European periphery.

Meeting last month, rate setters opened the door to changes in the country make-up of the purchases, originally based on the amount of capital each country has paid into the ECB. That could pave the way for bigger purchases in debt-laden Italy and Spain.

“There was some room for a trade-off between relative deviations from the capital key across jurisdictions and limiting the extent of purchases below the DFR,” the ECB said.

“This baseline approach could be reconsidered by the Governing Council should undue market effects materialise.”


Some policymakers recently said that no substantial policy review is likely in March and the first discussion on the next move is not likely until June, after the French and Dutch elections. No decision is likely until autumn, possibly after the German election in September.

Rate setters at the meeting also dismissed concern about inflation, arguing that rising energy prices were not feeding into the cost of goods and services and underlying inflation remained weak.

“The recent increases in energy prices had thus far not translated into indirect or second-round effects on broader inflation,” it said. “This suggested second-round effects would unfold rather slowly.”

Rate setters acknowledged better growth prospects and resilience. But they also warned that the euro zone could hit a ‘speed limit’ relatively soon given its growth constraints, suggesting that growth may not accelerate much further.

Negative risks have also receded somewhat, but overall risks to the economy were still skewed to the downside, policymaker added

Reporting by Balazs Koranyi; Editing by Larry King