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On January 23, 2020, the European Central Bank (ECB) logo was seen in Frankfurt, Germany. Ralph Orlowski/REUTERS Reuters, FRANKFURT, July 9 – At their June 10 meeting, European Central Bank policymakers pondered cutting stimulus as the economy gained traction, but ultimately reached “wide consensus” to retain a high level of assistance, according to meeting minutes released on Friday. Faced with growing borrowing rates and a still-fragile recovery, ECB policymakers judged that exiting the market too soon would raise yields and suffocate growth, as several critical sectors were not yet on firm enough footing, even if growth was now quite rapid. However, that conclusion was reached only after conservative officials pushed to slow down bond purchases in order for the ECB’s policy to keep pace with improving real economic indicators. “In light of the improved outlook for GDP and inflation, as well as the accompanying upside risks,” the ECB noted, “it was also suggested that asset purchases should be cut back considerably to provide the same degree of accommodation.” However, the ECB concluded that financial conditions remained “too weak” to allow a major slowdown in the pace of purchases without triggering an uncontrollable rise in rates. The ECB stated, “It was emphasised that the recovery was in its early stages and lacked resilience, as it relied primarily on policy support.” “An apparent slowdown in the pace of acquisitions for the coming quarter was therefore deemed undesirable at this time.” In fact, some policymakers suggested that, given the medium-term inflation outlook, even a stimulus boost could be justifiable. Commentary from the June meeting may not provide solid insight on the bank’s next policy action, as the ECB’s new strategy, which was published on Thursday, is expected to be the key guiding force for decisions as soon as the July 22 meeting. find out more The new strategy put the bank’s inflation target at 2%, abandoning its previous wording of “below but near to 2%,” and warned that periods of low inflation, such as the one we’re currently experiencing, may necessitate more sustained monetary policy action. While ECB President Christine Lagarde did not go into detail about what this means in practice, sources close to the talks say the bank is considering a fresh policy guideline for its July 22 meeting that would suggest an even longer period of policy accommodation. find out more While the eventual policy decision in June received unanimous approval, several conservative officials urged at the meeting for a reduction in bond purchases under the ECB’s 1.85 trillion euro Pandemic Emergency Purchase Program. Balazs Koranyi contributed reporting, while Catherine Evans and Andrew Heavens edited the piece. The Thomson Reuters Trust Principles are our standards./nRead More

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