ECB policymakers noted that the economic growth was likely to be weaker than initially thought this year and a package of stimulus measures would be more effective in combating the slowdown than a sequence of selective actions, minutes of the July meeting showed.
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, 24-25 July 2019:
8/22/2019 12:03:45 PM
Members shared the assessment that information available since the early June Governing Council meeting indicated that, while further employment gains and increasing wages continued to underpin the resilience of the economy, softening global growth dynamics and weak international trade were still weighing on the euro area outlook. The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism, and vulnerabilities in emerging markets, continued to dampen economic sentiment, notably in the manufacturing sector. It was noted that, while recent data were broadly in line with the baseline scenario and the forces underlying the baseline – such as solid wage growth and rising cost pressures – were still seen as intact, the uncertainty around the projected duration of the economic slowdown remained high, also affecting the medium-term inflation outlook. In this environment, inflationary pressures had remained muted and indicators of inflation expectations had declined.
Members expressed broad agreement with the monetary policy proposals made by Mr Lane in his introduction: first, to adjust the forward guidance on the key ECB interest rates by reintroducing an easing bias; and, second, to initiate preparatory work, including on ways to strengthen the Governing Council’s forward guidance on policy rates, mitigating measures, such as the design of a tiered system for reserve remuneration, and options for the size and composition of potential new net asset purchases. It was seen as important for the Governing Council to demonstrate its determination and capacity to act and to be prepared to ease the policy stance further by adjusting all of its instruments, as appropriate, to achieve its inflation aim. Looking ahead, more information would be available at the Governing Council’s monetary policy meeting in September, when new projections, incorporating the effects of the measures taken at the Governing Council’s June meeting, would be presented.
Members also broadly supported the proposal made by Mr Lane to task the relevant Eurosystem Committees with examining options for future policy measures. Some nuances were expressed about the design and the individual elements of a possible policy package, which was presented as a list of options. In particular, it was argued that the term premium on long-term euro area bonds had already been compressed for quite some time and that the risk of an unwarranted tightening of financial conditions was higher at the short end than at the long end of the yield curve. However, the view was expressed that the various options should be seen as a package, i.e. a combination of instruments with significant complementarities and synergies, since experience had shown that a policy package – such as the combination of rate cuts and asset purchases – was more effective than a sequence of selective actions. The point was made that the choice of instruments and the design of a possible package should reflect the relative effectiveness of different instruments in addressing future contingencies.