Policymakers at the European Central Bank judged that it was too early to change the policy communication despite the increased confidence that inflation would move near its target, minutes of the latest policy session showed Thursday.
“Members broadly agreed that any further evolution of the Governing Council’s communication on monetary policy would be gradual and would proceed in line with improvements in the medium-term inflation outlook,” the minutes, which the ECB calls “account” of the policy session held on January 24-25 revealed.
“Communication would evolve naturally in line with the ECB’s forward guidance” as inflation progress towards the bank’s aim of “below, but close to 2 percent” in a sustainable manner, the minutes said.
In the late January session, the ECB left all three interest rates and assets purchases unchanged, and there was also no change in the wording of the forward guidance, contrary to market expectations.
“The language pertaining to the monetary policy stance could be revisited early this year as part of the regular reassessment at the forthcoming monetary policy meetings,” the bank reiterated in the minutes.
Some policymakers expressed a preference for dropping the easing bias regarding asset purchases, that the bank is ready to raise the size and duration of the program if inflation moves away from target, from the Governing Council’s communication.
Such a move, they said, would be a “tangible reflection of reinforced confidence in a sustained adjustment of the path of inflation.”
“However, it was concluded that such an adjustment was premature and not yet justified by the stronger confidence,” the ECB minutes said.
The bank stressed that the highly expansionary policy stance would be maintained even after asset purchases end.
This is because the evolution of inflation would be dependent on “reinvestments continuing for an extended period of time and on policy rates remaining at their present levels well past the end of the ECB’s net asset purchases,” the ECB said.
“Concerns were also expressed about recent statements in the international arena about exchange rate developments and, more broadly, the overall status of international relations,” the minutes said.
That was in reference to a comment by the US Treasury Secretary Steve Mnuchin that a weak dollar was good for the US economy. The remark sent the dollar to three-year lows.
ECB President Mario Draghi had then mentioned the concern expressed by several ECB policymakers, adding that talking up or down currencies could be in violation of the G20 agreement that countries will not indulge in currency wars.
“Overall, there was broad agreement among members that the recent volatility in the exchange rate of the euro was a source of uncertainty which required monitoring with regard to its possible implications for the medium-term outlook for price stability,” the ECB minutes said.