ECB Focused on Pace Versus Duration as Caution Rules QE Plan

  • Central bank publishes account of Sept. 6-7 policy meeting
  • Council discussed scenarios for reducing asset purchases

European Central Bank policy makers kicked off their debate about next year’s monetary stimulus by focusing on how to balance the size and duration of monthly asset purchases.

The Governing Council looked at “general tradeoffs” between various scenarios for bond-buying, according to an account of the Sept. 6-7 meeting published on Thursday. They also reiterated that they intend to move extremely carefully to avoid rocking investors and undermining the recovery.

“Any reassessment of the monetary policy stance should proceed in a very gradual and cautious manner, while maintaining sufficient flexibility,” according to the account. There was “a broad agreement” that substantial support was still needed to ensure inflation returns to target.

In the run-up to the next policy decision on Oct. 26, ECB officials are showing differing preferences for the way forward with quantitative easing, which is set to run at 60 billion euros ($71 billion) a month and total almost 2.3 trillion euros by the end of December. Executive Board member Peter Praet, who crafts the policy proposals, said on Oct. 2 that calm markets may allow the final stages of the bond-buying plan to be dragged out.

Low Inflation

The deliberations over whether to slow asset purchases are colored by the fact that inflation continues to lag behind the ECB’s goal of just under 2 percent and its own projections don’t see that being achieved until at least late 2019. That’s partly because of the damping effect of the strengthening euro, which has risen more than 10 percent against the dollar this year.

The single currency barely budged after the account, and was down 0.3 percent on the day at $1.1728 at 3:47 p.m. Frankfurt time.

While the appreciation this year was seen partly to reflect the outlook for an improved economy and for ECB policy relative to other central banks, “concerns were expressed, notably about the recent momentum,” the account showed. “There was wide agreement that the recent movements in the euro exchange rate represented a source of uncertainty, which required monitoring.”

President Mario Draghi said last month the ECB will keep as much stimulus as the euro-area economy needs. While it is poised for its fastest growth this year in a decade, price pressures remain weak. Core inflation, a measure that strips out volatile components such as food and energy, fell to 1.1 percent in September, the lowest in three months. It hasn’t exceeded 1.5 percent in more than five years.

“Discomfort was widely expressed about the very prolonged period over which inflation had been -- and was still expected to remain -- distant from the Governing Council’s aim,” according to the account.

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