ECB January Meeting Minutes: A turnaround from December

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The ECB January Meeting Minutes were released from the monetary policy meeting held in January. The minutes surprised the markets as policy makers were unwilling to make any changes in its forward guidance for the markets.

The minutes revealed a stark turnaround from officials who had at the previous meeting discussed opportunities for tweaking the language of its monetary policy in order to prepare the markets for potential tightening.

While the earlier minutes from the previous month saw a hawkish twist, January’s meeting was a complete turnaround in comparison.

The ECB January Meeting Minutes showed that policy makers rejected token changes to the central bank’s policy message as officials argued that it was premature to signal a policy change. The weak stretch of inflation was attributed as one of the reasons. Recent data on the inflation front showed that consumer prices in the Eurozone started to weaken. Headline consumer prices were seen rising to a high of 1.5% mid last year before prices started to ease back again to 1.3% at the latest reading as of January 2018.

Despite the dovish message, officials are still looking at tweaking the central bank’s stand on monetary policy and could start later this year. The ECB’s next monetary policy meeting is due in early March. No changes are expected from the central bank at next month’s meeting but focus is likely to be on the weaker pace of inflation.

“Changes in communication were generally seen to be premature at this juncture,” policymakers said. “Monetary policy would continue to develop… with a view to avoiding abrupt or disorderly adjustments at a later stage.”

On the economic front, activity in the Eurozone continues to rise with latest data suggesting that the momentum in growth was firmly entrenched. However, given the high levels of activity previously, which sent the Eurozone GDP to a decade high was starting to moderate.

This was evident from the flash manufacturing and services activity released last week which showed that all major indicators were easing back from record highs.

The minutes also showed that members were divided on tweaking the language. Some members expressed a preference for removing the easing bias from the language, while said that this was a premature move and was not yet justified.

The ECB had last cut its QE purchases during the fourth quarter of 2017 as the central bank announced that it would purchase bonds at a pace of 30 billion euro through September 2018.

Although the announcement was hawkish, the central bank maintained that it was still willing to tweak its bond purchases depending on how the economy performed. While market speculators are expecting to see further tightening from the ECB, the fact remains that monetary policy will be data dependent.

The ECB January Meeting Minutes will likely cast a shadow at the next ECB meeting due in March. The central bank is expected to also announce its quarterly projections on the GDP, inflation and unemployment. Few weeks ago the European Commission had published its economic forecasts.

The data showed that officials were optimistic that growth will continue to rise into 2018, albeit at a slower pace compared to the annual 2.5% increase in GDP activity in 2017.

The euro currency was seen easing back from the highs amid a week that saw highlights from the FOMC meeting minutes and last Thursday’s ECB meeting minutes.

 

 

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