ECB aiming to be 'steady hand' in uncertain global economic climate
The European Central Bank is aiming to be a "steady hand" during a period of global uncertainty, according to the minutes of the ECB’s meeting in January, when it stood pat on interest rates.
The minutes said that the Governing Council was “advised to remain patient and maintain a ‘steady hand’ to provide stability and predictability in an environment that was still characterised by a high level of uncertainty”.
The ECB said that “underlying inflation pressures had remained subdued and signs of a convincing upward trend were still lacking”, while the central bank’s chief economist Peter Praet proposed to “emphasise that changes in HICP inflation would be looked through.”
The minutes said risks to the economic outlook “had receded somewhat”, but remained “tilted to the downside”, with analysts at Capital Markets noting that the January meeting was before the widening of euro-zone bond spreads seen towards the end of the month.
It also said that the ECB “remained prepared to adjust its purchase programme in terms of size and/or duration should the outlook become less favourable”.
ECB president Mario Draghi said in January that there was no discussion of tapering purchases to zero or even how that tapering would be communicated.
At the 18-19 meeting the ECB kept interest rates on hold for the Eurosystem’s main refinancing operations, the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40% respectively, and said it saw no signs of a sustained pickup in inflation.
The Governing Council also said it will taper the asset purchase programme at a monthly pace of €80bn until the end of March and from April it will continue at a pace of €60bn until the end of December.
Capital Economics said: “With regard to the limits of its asset purchase programme, the account once again outlined the ECB’s commitment to prioritising the issue and issuer limits for purchases over other constraints. Instead, the minutes noted that ‘limited and temporary deviations were possible and inevitable’ with regards to aligning purchases with the capital key.
“The upshot is that we still expect asset purchases to continue as set out this year and see the resulting policy divergence with the US Federal Reserve causing the euro to fall below parity with the dollar. But given that the ECB has already been deviating from its capital key for some time and must stick to the issuer constraints, the limits to the asset purchase programme are approaching – we expect the ECB to begin tapering in 2018.”