ECB Minutes Show Policymakers Saw Risks To Growth Clearly Tilted To Downside

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European Central Bank policymakers saw the risks to the euro area growth outlook as clearly tilted to the downside and agreed that this warranted an adjustment in its monetary policy measures in December, the minutes of the latest policy session showed on Thursday.

“Overall, members considered the risks surrounding the growth outlook to be clearly tilted to the downside,” the minutes, which the ECB calls the ‘account’, of the October 28-29 Governing Council session revealed.

In the post-decision press conference on October 29, ECB President Christine Lagarde had clearly signaled that the ECB is set to take policy action in December as policymakers will be presented with the latest set of ECB staff macroeconomic projections.

Policymakers’ comments thereafter have hinted at a possible expansion of the pandemic emergency purchase programme, or PEPP, and more targeted lending to banks in the form of TLTROs.

Rate-setters felt that the sharper slowdown in growth momentum and the weakening of underlying inflation dynamics, as well as the deterioration in the balance of risks, would warranted a recalibration of the monetary policy instruments in December, the minutes said.

“It was noted that taking monetary policy decisions in December would be consistent with prevailing market expectations,” the minutes added.

That said, they also stressed on the need to reaffirm that the Governing Council stands ready to act at any time, when needed.

The resurgence in the coronavirus or Covid-19 pandemic has seen countries like Germany and France return to lockdown. While the market reaction to this has been relatively muted, they remain fragile and the threat of a price correction persists in case of a no-deal Brexit or a further worsening of the pandemic.

A delay in the disbursement of funds under the Next Generation- EU programme could also affect market sentiment, the ECB minutes said.

Policymakers also pointed out that more than half of the PEPP envelope was still available to conduct ongoing purchases in a flexible manner in case of renewed market turbulence.

ECB rate-setters also expressed concern regarding the side-effects and “diminishing returns” of existing policy instruments in an environment of high uncertainty and very favorable financial conditions.


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