ECB policymakers agreed that September's stimulus measures should be allowed more time to fully unfold their effects on the Euro Area economy and on inflation outlook despite concerns about the possible side effects, particularly given that some of the measures had yet to be implemented, minutes of Mario Draghi's last policy meeting showed. Officials also made a "strong call" for unity after several members opposed the stimulus package in September, and reiterated that fiscal policy had to play a more prominent role in supporting growth.
Excerpts from Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 23-24 October 2019:
It was underlined that the incoming information since the September monetary policy meeting had confirmed the pronounced slowdown in euro area economic growth and a continued shortfall of inflation with respect to the inflation aim, thus vindicating the monetary policy decisions taken by the Governing Council at that meeting. There was wide agreement that more information would be needed to reassess the inflation outlook and the impact of the monetary policy measures, particularly given that some of the measures had yet to be implemented – notably the resumption of net asset purchases and the introduction of a two-tier system for reserve remuneration. Therefore, the measures should be allowed more time to fully unfold their effects on the euro area economy and ultimately on inflation outcomes, taking into account the usual transmission lags of monetary policy.
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. Accordingly, it was vital for the Governing Council to remain prepared to act by using its full set of instruments if the inflation outlook so required. It was, however, cautioned that due account also had to be taken of the assessment of the possible side effects of monetary policy measures. At the same time, a plea was made for patience to allow the measures taken in September to work through the economy, supporting a “wait and see” posture at the current juncture.
As regards communication, members widely agreed with the proposals made by Mr Lane in his introduction. It needed to be stressed that the September monetary policy package supported the sustained convergence of inflation towards the Governing Council’s aim, while noting that the transmission of the individual measures would take time to work its way through to growth and inflation dynamics. At the same time, the Governing Council needed to forcefully reiterate its unwavering commitment to achieving its inflation aim and the need for a highly accommodative stance of monetary policy for a prolonged period of time to support underlying inflation pressures and headline inflation developments over the medium term. In the light of the persistence of prominent downside risks surrounding the euro area outlook, it also needed to be emphasised that the Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in a sustained manner, in line with its commitment to symmetry.
Looking ahead, a strong call was made for unity of the Governing Council. While it was underlined that open and frank discussions in the Governing Council were absolutely necessary and legitimate, it was regarded as important to form a consensus and to unite behind the Governing Council’s commitment to pursuing its inflation aim.
Furthermore, the call on other policymakers was reiterated, emphasising that they needed to contribute more decisively to supporting the euro area economy. In particular, fiscal policy, notably of governments with fiscal space, had to play a more prominent role to stabilise economic conditions in view of the weakening economic outlook and the continued prominence of downside risks.
11/21/2019 1:52:23 PM