ECB sees potential need for fiscal stimulus to buttress growth

Policymakers at the European Central Bank put in motion preparations for further monetary stimulus when they last met, although they believed that if the Eurozone economy deteriorated significantly more then it would be national governments' turn to step in with higher spending, the minutes of their most recent policy meeting revealed.

The minutes of the ECB Governing Council's meetings on 24-25 July showed that rate-setters had estimated that financial markets were already pricing in a 10 basis point reduction in the central bank's deposit rate when they next met in September and another 20 basis points of cuts by the end of 2020.

"Uncertainty around the near-term policy outlook had increased over the past few weeks" the minutes said and "the trade outlook had remained surrounded by uncertainty and there was no clear sign of stabilisation."

So much so that the ECB's growth forecasts might need to be lowered again.

According to the minutes: "It was also considered that these downside risks had become more pervasive and that their persistence could ultimately also necessitate a revision to the baseline growth scenario.

"The contingency of a significant further deterioration in euro area economic activity would call for fiscal policy to assume a more prominent role in sustaining demand."

Nonetheless, not all countries had room to loosen their fiscal policy, GC members concluded.

They were also wary about not sounding an "unduly" negative tone about the economic outlook, even as they aimed to reassure those worried that the ECB lacked the means to return inflation to target.