ECB: June minutes stress the determination to deliver more - ING

Carsten Brzeski, chief economist at ING, notes that the latest ECB minutes of the June meeting demonstrate the ECB’s willingness to prop up inflation expectations.

Key Quotes

“Interestingly, the June decisions were not unanimous, as illustrated by the phrase that “there was broad agreement, that, in the light of the heightened uncertainty, which was likely to extend further into the future, the Governing Council needed to be ready and prepared to ease the monetary policy stance further by adjusting all of its instrument.” Also, there were some disagreements on the different adjustments of forward guidance and the TLTRO (targeted longer-term refinancing operations) pricing at the June meeting.”

“In general, the tone of the minutes both reflects the ECB’s concerns about the growth and inflation outlook as well as its determination to do more.”

“For the ECB, at least until Mario Draghi’s term ends in October, there are two main factors driving its action: the price stability mandate and showing determination to act. In the eyes of the ECB, there is hardly anything worse than a central bank admitting it has run out of ammunition. Consequently, as long as inflation expectations and the ECB’s own inflation projections for the next years remain clearly below 2%, the ECB will fire on all cylinders. No matter whether additional stimulus still reaches the real economy or not.”

“Looking ahead, Mario Draghi’s Sintra speech has made clear that the question regarding the short-term outlook for the ECB is no longer “what negative surprise is needed for the ECB to cut rates” but rather “what positive surprise could actually prevent the ECB from cutting rates”.”

“Economic data out of the Eurozone as well as the Fed’s de facto announcement of a July rate cut have clearly pushed the ECB closer towards July action, rather than waiting until September.”