EMU: ECB Minutes

Thu Oct 05 06:30:00 CDT 2017

Minutes of the ECB's September policy meeting confirm that the central bank was close to making an announcement regarding a possible tapering of its QE programme. That it did not, reflected continued concerns about subdued inflation dynamics and insufficient signs of progress towards a durable and self-sustaining convergence with the near-2 percent target.

The risks to the growth outlook were still seen as broadly balanced. Upside risks were due to domestic demand, primarily in the short-run owing to the positive cyclical momentum, while downside risks related mainly to global factors and developments in foreign exchange markets. Regarding the exchange rate, the ECB partially attributed the euro's recent appreciation to a more positive market assessment of Eurozone growth and reduced perceptions of political risk. This suggests that, within reason, further euro appreciation need not get in the way of a revised QE programme.

Today's minutes will leave intact speculation that the monetary recalibration will be announced on the 26th of this month. The general consensus would seem to be an initial reduction in monthly asset purchases of around E20 billion/month with a view to completely eliminating new purchases around the end of next year. That said, the dip in (flash) underlying inflation in September and still firm exchange rate could yet encourage a deferral until the final meeting of the year on December 14th.

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.