ECB Minutes: Here Are The Main Highlights
One day after the FOMC minutes, we got the ECB’s account of its latest March 10-11 Governing Council meeting which said that “the recent tightening of financing conditions was generally seen as premature for the euro area, which was still in a weaker cyclical position than the U.S.” The ECB noted that higher real rates were not necessarily a cause for concern and should not trigger a policy intervention if they reflected higher growth prospects rather than higher real term premia.
Here are some of the highlights courtesy of Newsquawk and Bloomberg:
- A remark was made that assessing developments in real interest rates was subject to uncertainty as regards the measurement of the relevant inflation expectations.
- The view was held that the increase observed in sovereign yields had remained contained and to some extent decoupled from developments in the United States.
- It was underlined that the flexibility embodied in the PEPP was symmetric, implying that the purchase pace could be increased and decreased according to market conditions.
- In the overall context of a holistic and multifaceted approach to evaluating financing conditions (spanning the entire transmission chain of monetary policy), developments in risk-free interest rates and sovereign yields were particularly relevant.
- It was remarked that the Governing Council needed to avoid giving the impression of being overly focused on sovereign yields or reacting mechanically to a set of indicators of financing conditions. Moreover, the view was put forward that the tightening might not be sizeable and persistent enough to affect broader financing conditions materially.
- Total PEPP envelope was not being called into question in the current conditions and that the pace of purchases could be reduced in the future
- “Although a better economic outlook in the U.S. also entailed positive demand effects for the euro area, it was observed that the optimism prevailing on financial markets, reflected in ‘reflation trades,’ seemed not to be shared by businesses and households, which had generally maintained a cautious stance”
- “On the basis of the March staff projections, the euro area inflation and growth outlook had remained largely unchanged since the Governing Council’s December meeting. This was widely seen to call for a continuing high degree of accommodation”
- At the same time, it was underlined that, to assess the favorability of financing conditions, it was necessary to understand the underlying drivers of the rise in risk-free rates”
- “There was broad consensus among members that the recent rises in risk-free rates and GDP-weighted sovereign yields required a scaling-up of the pace of purchases under the PEPP”
- “A significant increase in the purchase pace for the next three months was seen as warranted by the observed tightening of financing conditions and the lack of a material improvement in the growth and inflation outlook”
- There was an “understanding that the total PEPP envelope was not being called into question in the current conditions and that the pace of purchases could be reduced in the future”
- ECB’s Isabel Schnabel said that “in some economies, the rise in risk-free rates had increased risks to asset valuations, which remained predicated on expectations of an extended period of low interest rates.”