Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt on 21-22 January 2015:
With regard to the monetary policy stance, the members broadly shared the assessment that inflation dynamics had continued to be weaker than expected, economic slack had remained sizeable and money and credit developments had continued to be subdued, notwithstanding recent more positive monetary developments. The Governing Council was thus faced with heightened risks of too prolonged a period of too low inflation.
A number of considerations were put forward in support of monetary policy action being taken at the current meeting. While the existing monetary policy measures adopted in June and September 2014 were showing encouraging results with regard to a further improvement in overall financing conditions, it had become increasingly evident that they would fall short in quantitative terms. This implied that the expected stimulus via funding cost relief and the boost to lending provided by the TLTROs and the existing private sector asset purchase programmes was more limited than had initially been envisaged. The view was widely shared that inflation developments continued to be weaker than expected.
Taking into account both the weakened medium-term outlook for price stability and the smaller than envisaged monetary stimulus introduced by the policy measures adopted in June and September 2014, the prevailing degree of monetary policy accommodation was seen to fall short of sufficiently countering the heightened risks to the ECB’s medium-term price stability objective. Against this background, there was a broadly shared view that the conditions were fully in place for taking additional monetary policy action at the current meeting. Moreover, an unwelcome tightening in the monetary policy stance – as reflected, for example, in higher real interest rates in an environment of declining prices with policy rates at the lower bound – needed to be countered. Monetary policy needed to act to anchor inflation expectations in line with price stability over the medium term. Such anchoring required forceful policy action in addressing too low a level of inflation, just as had been the case in the past when countering inflation rates above the ECB’s price stability objective. In addition, the current meeting was the right time to take monetary policy action as it would allow the measures to provide decisive support to the momentum of the recovery in the period ahead.
Against this background, and taking into account the views expressed by the members of the Governing Council, the President concluded that a large majority of voting members supported a decision to launch an expanded asset purchase programme, comprising the existing purchase programmes for ABS and covered bonds as well as purchases of euro-denominated securities issued by euro area governments and agencies and supranational institutions. This programme would start in March 2015 and involve monthly purchases of €60 billion which were intended to last until the end of September 2016, and, in any case, until the Governing Council saw a sustained adjustment in the path of inflation consistent with the aim of achieving inflation rates below, but close to, 2%.
As regards the risk-sharing regime, the consensus reached was that 20% of the overall additional asset purchases would be subject to sharing of hypothetical losses. This included the sharing of possible losses on the NCB purchases of the bonds of supranational institutions, amounting to 12% of the additional asset purchases, as well as the sharing of possible losses on the 8% holdings of the additional purchases by the ECB.