Policymakers at the European Central Bank agreed that they needed to be ready to ease the policy stance further, as uncertainties were likely to continue in the coming months, the minutes of the June 5-6 rate-setting session in Vilnius, Lithuania, showed on Thursday.
“There was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the Governing Council needed to be ready and prepared to ease the monetary policy stance further by adjusting all of its instruments, as appropriate, to achieve its price stability objective,” the minutes, which the ECB calls “account”, showed on Thursday.
“Potential measures to be considered included the possibility of further extending and strengthening the Governing Council’s forward guidance, resuming net asset purchases and decreasing policy rates.”
Rate-setters led by ECB President Mario Draghi also considered the need for “more strategic” measures if inflation continued to remain low and that the bank’s communication should stress that deviations of inflation from the bank’s target in both directions would be tolerated.
“At the same time, the point was made that care needed to be taken to ensure that any considerations of a strategic nature could not be seen as moving the goalposts at a time when it proved challenging to achieve the Governing Council’s inflation aim,” the minutes said.
A discussion surrounding a more symmetric inflation target is set to gain momentum under the new ECB chief Christine Lagarde, ING economist Carsten Brzeski said. Draghi’s term is set to end in October.
The ECB targets inflation “below, but close to 2 percent.”
While, policymakers were united in supporting the policy proposals put forward by the new ECB Chief Economist Philip Lane, the wording “broad agreement” suggest that they were divided regarding future stance.
“Some nuances were expressed about individual elements of the policy package,” the minutes said.
This mainly referred to differing opinions regarding the extension of the calendar element of the forward guidance and the pricing of the targeted longer-term loans under the TLTRO-III.
In the June session, ECB priced the targeted longer-term loans under TLTRO III, 10 basis points above the average rate in the main refinancing operations. These loans will mature in two years.
“In general, the tone of the minutes both reflects the ECB’s concerns about the growth and inflation outlook as well as its determination to do more,” Brzeski said.
The economist said the only other option ECB has in the July meeting, than a rate cut, is to tweak the forward guidance, by adding the words “or lower”, thus signaling rate cuts ahead.
The bank can then unveil a bigger stimulus in September in the form of a 20 basis points cut in the already-negative deposit rate and a restart of asset purchases, Brzeski said, adding that there is an increasing risk that this package would be delivered in two weeks from now.
“Whether it is July or September, Mario Draghi will definitely leave office with a bang,” he concluded.
ECB Governing Council’s next rate-setting session is scheduled on July 25 in Frankfurt.
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