EMU: ECB Minutes

Thu Jul 06 06:30:00 CDT 2017

The minutes of the ECB's June meeting underline the central bank's concerns about financial markets prematurely anticipating a monetary tightening in the event of even just a slight adjustment to its policy stance. Consequently, the decision to remove the option of yet lower interest rates from its forward guidance was not taken lightly.

Otherwise the minutes confirm increasing confidence in the Eurozone's economic recovery tinged with caution about the stubbornly low level of core inflation. Downside risks related to the Eurozone domestic economy and political risks were seen to have diminished markedly. Nonetheless, there was still a clear majority on the Governing Council holding the view that getting inflation back to target on a sustainable basis remained conditional on the maintenance of a highly accommodative monetary stance.

Looking ahead, the ECB will have to tread very carefully in its communications over coming months. Acknowledgment of a strengthening real economy in its forward guidance will need to be delivered incrementally and a way that does not prompt financial markets to get ahead of themselves. A major shift in policy is probably still some while away yet but speculation will likely build ahead of September's meeting when updated economic forecasts will be available. The last thing the central bank wants now is the market pre-empting any policy announcement through a rise in market interest rates that tightens monetary conditions well ahead of the ECB's own designs.

The European Central Bank (ECB) meets about every six weeks to determine the appropriate stance of monetary policy. The precise details of the policy deliberations are kept secret for thirty years but, since the 22nd January 2015 meeting, summary version of the minutes have been made available around four weeks after the discussions have taken place.

The minutes provide a key insight into what the ECB is focusing upon when setting policy. As such they potentially can have a sizeable impact upon investor sentiment; especially at times when speculation is rife about a possible near-term change in official interest rates and/or non-conventional monetary policy instruments.