ECB Minutes: No Sound of Any Helicopters - ING
Peter Vanden Houte, Chief Economist at ING, suggests that the minutes of the ECB’s March meeting brought little news.
Key Quotes
“Whilst
there doesn’t seem to be an intention to lower rates any further,
there’s also a commitment to keep them at current rates at least until
2018 and a desire to keep the yield curve flat. Helicopter money isn’t
in the ECB’s toolbox for the time being.
The minutes of the ECB’s
March monetary policy meeting echo to some extent the Fed Minutes that
were published yesterday: just like the Fed, the ECB see potential
downside risks to the external environment. And even though domestic
demand is looking more robust, the risks remain skewed to the downside.
In that regard the argument was made that for countries with available
fiscal space, public investment could be increased. At the same time,
the members of the Governing Council showed concern about the prospect
that it would take longer to reach the inflation objective than
previously expected.
Members therefore widely agreed that there
was a need to reconsider the monetary policy stance. While there was
broad agreement for the launch of the TLTRO II to ease credit
conditions, some members found the incentive scheme rather generous. The
proposal to increase the size of the APP to €80 billion was also widely
supported, although a few members restated their reservations regarding
the purchase of public sector bonds, given a number of less favourable
side effects (which were not identified in the minutes).The inclusion of
investment-grade euro-denominated corporate bonds was also met with
broad support. That said, a few participants questioned the
effectiveness.
While the rate cuts were broadly approved, there
was a discussion on the costs and benefits of moving further into
negative territory. This discussion covered the adverse impact on the
banks’ profitability, the potential financial market volatility as well
as the diminishing effectiveness of the policy. The ultimate feeling
seemed to be that barring new adverse shocks, the Council did not
envisage cutting rates further. An exemption scheme to shield banks from
the negative impact of the lower deposit rate was discussed, but
rejected for the time being. In our view it will be probably looked at
again, if circumstances push the ECB into cutting the deposit rate once
more. The emphasis on strengthening the forward guidance by adding that
the ECB would keep rates low or even lower well past the horizon of net
asset purchases, seems to indicate that no rate increase is foreseen
before 2018.
All in all, there was little new information
contained in the minutes. While some members of the Governing Council
have emphasized in recent interviews the possibility of even lower
interest rates, this looks rather unlikely. But if unforeseen shocks
warrant another rate cut, then the exemption scheme for the deposit rate
facility would probably be introduced. However, what is fairly certain
is that there will be no rate hikes until at least 2018. The most
interesting thing in the minutes was the absence of any mention of
helicopter money. Despite the large amount of discussion in the
blogosphere/newspapers on the subject, it appears that it is not on the
Governing Council’s radar screen at this moment.”
(Market News Provided by FXstreet)
