ECB Meeting Minutes – Officials prepare markets to end its QE program in December

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The European Central Bank released its monetary policy meeting accounts last week. The minutes cover the ECB’s monetary policy meeting held on October 24 – 25. The Central Bank did not announce any major policy decisions at this event.

Officials stressed the importance of reaffirming the plans to dial down the monetary stimulus program amid some risks to the economy.

“It was important to emphasise that the incoming information, while somewhat weaker than expected, remained overall consistent with an ongoing broad-based expansion of the euro area economy and gradually rising inflation,” the ECB minutes showed.

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The minutes revealed that on the financial market developments, the risks over the trade disputes with the U.S. were limited as far as U.S. equity markets were concerned. However, the minutes showed that officials discussed the impact of the trade disputes on emerging market economies and China as well.

On the domestic front, officials noted the weaker pace of growth in the flash PMI’s during September.

The weakness in the manufacturing sector was attributed to sector-specific factors. The weakness in the GDP is expected to temporary, according to Peter Praet, the ECB’s chief economist.

Growth in household income was seen coming due to employment growth and business investment is expected to continue.

“While there was broad agreement that at present the risks to growth could still be considered to be balanced overall, a remark was made that a number of arguments pointed towards risks to the growth outlook tilting to the downside,” the minutes showed.

On inflation, the minutes showed that inflation was broadly higher than expected but that underlying inflationary pressures remained flat. Still, the ECB officials expect inflation to be supported, mostly due to an increase in employment and a recovery in producer and import prices.

The average inflation expectations for the fourth quarter were expected to be around 1.7% for this year and the next. This was an unchanged forecast compared to the previous period.

The incoming data was seen to be consistent with the baseline scenario of the ongoing economic expansion. In the second quarter, the Eurozone posted a quarterly growth rate of 0.4%. However, the GDP figures showed just a 0.2% increase in the third quarter.

Most of the declines were attributed due to temporary factors such as the German automobile sector being hit due to the emission standards. Members were seen to agree overall that the weaker pace of growth was but expected. This comes following a solid growth data in 2017.

The members also discussed the Brexit issue and noted this as one of the “uncertainties” related to the global growth factor.

The minutes showed that officials would wait for the staff economic projections that will be released at the December ECB meeting. They expect the predictions to offer more insights into the Central Bank to conduct an in-depth assessment of the economy.

Members expect the growth forecasts to be revised lower from the September 2018 monetary policy meeting.

The minutes also showed that members agreed to take a patient and a prudent approach to monetary policy. “Maintaining the prevailing monetary policy stance in line with the decisions taken at previous meetings was seen to be consistent with the Governing Council’s data-driven approach to monetary policy” the minutes showed.

The minutes concluded by noting that the Central Bank would continue its net purchases at the pace of 15 billion euro until the end of December this year. After assessing the incoming data, the ECB members noted that a decision would be taken in December to end its QE program.



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