ECB to ‘remain firm’ on its stimulus plan

European Central Bank policymakers agreed at their March meeting to “remain firm” in implementing their large-scale asset-purchase programme, even though the economic outlook is improving, records published yesterday showed.

The Governing Council, at its policy meeting on March 5, said it would begin printing money to buy bonds — so-called quantitative easing (QE) — on the following Monday, March 9. It also presented updated forecasts from its staff economists that gave a more rosy outlook, but policymakers agreed that did not reduce the need for QE.

“The March 2015 projections should… not be interpreted as suggesting that the latest monetary policy measures were less necessary,” the accounts of the meeting read.

“Hence, it was essential for the Governing Council to remain firm, implementing the measures adopted without hesitation until the objectives were reached, in line with its commitment to keep this policy in place for as long as needed,” the accounts read.

The comments are significant because just three weeks into the 19-month bond-buying programme, analysts have begun speculating that the ECB may throttle back the pace of purchases early, possibly even this year.

The ECB left its main interest rate at a record low just above zero at the off-base March meeting in Cyprus. It also lifted its growth forecast for the eurozone economy to 1.5% for this year, from the 1% it predicted in December. ECB staff foresaw eurozone inflation rising from 0% this year to 1.8% in 2017, that would put it in line with the bank’s target of close to but below 2%.

“It was affirmed” at the March 5 meeting that the ECB’s deposit rate of minus 20 basis points, which sees it effectively charge banks for holding their money overnight, “should be regarded by the Governing Council as the effective lower bound,” the minutes read.

The minutes of the meeting give a bare-bones account of the discussion, but they do provide a glimpse of the pressure and tension involved in ECB decision-making, which seeks to forge consensus among 19 different countries from Germany to Greece.

The ECB aims to purchase €60bn a month of mainly sovereign bonds until September 2016, or beyond that if needed to see a sustained adjustment in the inflation path back towards its target of just under 2%.

ECB chief economist Peter Praet, who gave a presentation at the beginning of the meeting, saw no need for the council to reconsider any of the parameters around the programme, the minutes showed.

Council members “generally shared the assessment” that positive effects from the January 22 decision to launch QE, along with previous policy stimulus, could already be seen in the easing of financial market conditions and lower financing costs.

Reuters