Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 7-8 March 2018:
Overall, while the increased confidence called for a gradual adjustment in the Governing Council’s communication, prudence, patience and persistence with regard to monetary policy remained warranted for underlying inflation pressures to continue to build up and support headline inflation developments over the medium term.
Members also broadly concurred with the assessment by Mr Praet that financial conditions remained very favourable but had tightened somewhat since the January monetary policy meeting on account of weaker equity markets, an appreciation of the euro and an uptick in market interest rates. It was remarked that the tightening in financial conditions also had to be seen against the background of improvements in macroeconomic conditions and, hence, may not necessarily imply a more restrictive monetary policy stance. Moreover, the pass-through of the ECB’s monetary policy measures continued to provide significant support to borrowing conditions for firms and households. At the same time, some caution was voiced, as the more recent developments in the euro exchange rate and in financial conditions in part reflected changing perceptions about monetary and fiscal policies, domestically and globally, as well as rising risks of protectionism and heightened market sensitivity to communication, rather than further improvements in domestic economic fundamentals. Against this background, developments in the exchange rate and financial conditions required monitoring with regard to their possible implications for the inflation outlook.
It was seen as encouraging that the latest ECB staff projections appeared to remain consistent with inflation converging to levels below, but close to, 2% over the medium term, also confirming the outlook contained in previous projection exercises. Moreover, growth rates well above current estimates of potential growth and the corresponding increase in capacity utilisation were seen as strengthening confidence in the currently expected inflation path.
At the same time, recent inflation outturns had remained some distance away from the Governing Council’s inflation aim and the incoming information continued to point to muted price pressures overall. Moreover, while confidence in the inflation outlook had increased, it was still seen as subject to a number of uncertainties, related mainly to the degree of remaining economic slack and risks emanating from the global environment as well as developments in foreign exchange and other financial markets.
Looking ahead, there was broad agreement on the main elements put forward by Mr Praet in his introduction. The course of monetary policy would remain firmly guided by the Governing Council’s continuous assessment of the progress made towards a sustained adjustment in the path of inflation based on the three criteria of convergence, confidence and resilience. In particular, once the Governing Council judged that the criteria for a sustained adjustment were met, the net asset purchases would expire in line with the conditionality expressed in the forward guidance on the APP.
It was recalled, as on previous occasions, that, beyond the horizon of the net asset purchases, the monetary policy support still necessary for inflation to converge to the inflation aim would be provided by the stock of acquired assets, by reinvestments continuing for an extended period of time, and by policy rates remaining at their present levels well past the end of the net asset purchases.