ecb dec 18 rate decision minutes reaction
table top

Thursday, 10 January 2019


LIVESQUAWK NEWS--The account of the December meeting of the European Central Bank’s Governing Council showed that rate-setters stuck to their forward guidance set in June as they faced increasing concerns about the volatility of the current economic environment.


The account said that during the council discussions about Eurozone growth prospects, “It was underlined that the situation remained fragile and fluid.”


ING Chief German Economist Carsten Brzeski said such a statement shows that the bank has become more cautious. “This is the underlying tone of the account.”


This stance locks in plans for Eurozone monetary policy for at least three to six months, he said. “I think they will wait until at least the March projections and maybe even until the June projections to change anything on forward guidance.”

Certain About Uncertainty


According to the account, the rate-setters suggested they are now confronting a more inscrutable economic landscape, “It was also argued that […] the continually changing nature of risks would sustain – or even increase – general uncertainty.”


The council discussed an environment of “risk rotation” and noted declines in downside risks such as trade tensions, emerging markets, US monetary policy and the development of the euro-area sovereign bond market.


According to the minutes, the council discussed shifting its risk assessment from “broadly balanced” to a downside tilt due to a spate of weak economic indicators but decided against it. In December, the bank said the chances of a growth slowdown were on the rise.


“All in all, members concurred with the view that the risks to the euro area outlook could still be assessed as broadly balanced, but that the balance of risks was moving to the downside. This assessment struck the necessary balance between confidence in the medium-term outlook and acknowledgment of the recent weakness in data and indicators.”


The account said that while the news had been more negative as of late, “this had been incorporated in the downward revision to the baseline Eurosystem staff projection.” Last month, the bank lowered its growth expectations for this year to 1.9pct from 2.0pct and for next year to 1.7pct from 1.8pct.


The rate-setters also discussed some signs of impetus for growth. “The assessment of still balanced risks to growth was supported by the emergence of new upside risks, namely a further decline in oil prices since the cut-off date for the projections and the likelihood of more stimulus coming from fiscal measures.”


Staying The Course


The ECB announced plans in June to hold interest rates at current levels until at least the end of the coming summer. A broad range of economists say recent signs of economic weakness could delay the first rate hike until after the autumn or beyond.


Brzeski said: “In an ideal world, they would like to hike the deposit rate at the end of the summer. But now they are highly data-dependent.”


Observers hoping for details about plans for a possible extension of long-term bank loans such as the TLRTOs and their role in the monetary policy mix will have to be patient.


“Looking ahead, the suggestion was made to revisit the contribution of targeted longer-term refinancing operations to the monetary policy stance,” the account said.


Eric Culp, LiveSquawk News - Frankfurt

table bottom