ECB minutes describe why the Governing Council decided on sovereign QE
19 February 2015, 17:42
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Peter Vanden Houte of ING, reviews the ECB Minutes and states the reasons behind the ECB deciding on the sovereign bond purchases.
Key Quotes
“From the analysis made by Peter Praet it was clear that the ECB had become prisoner of the expectations it had created in December. As financial markets had already strongly anticipated the announcement of a sovereign bond purchase programme, failing to act could have created a dramatic market reversal.”
“There was broad agreement amongst the members of the government Council that the euro area economy continued to be characterized by protracted weak demand. While lower oil prices were considered to be a positive factor, to some extent it was also the reflection of weak overall demand.”
“While there was some hope that the economy was bound to improve somewhat, the risks to the growth outlook remained on the downside.”
“Even though outright deflation was not expected, the risk that inflation expectations would get unanchored had clearly risen. Confronted with the heightened risk of too prolonged a period of too low inflation, the Governing Council had to decide on further action.”
“All members agreed that asset purchases, including sovereign bond purchases, were a legitimate part of monetary policy instruments.”
“While additional stimulus could be needed a number of members pleaded for a wait-and-see attitude, given that there was already some additional monetary accommodation in the pipeline and that low inflation was mainly driven by oil prices.”
“Given the controversial nature of sovereign bond purchases, they therefore advocated to use this instrument only as a last resort in the event of an extreme adverse scenario.”
Key Quotes
“From the analysis made by Peter Praet it was clear that the ECB had become prisoner of the expectations it had created in December. As financial markets had already strongly anticipated the announcement of a sovereign bond purchase programme, failing to act could have created a dramatic market reversal.”
“There was broad agreement amongst the members of the government Council that the euro area economy continued to be characterized by protracted weak demand. While lower oil prices were considered to be a positive factor, to some extent it was also the reflection of weak overall demand.”
“While there was some hope that the economy was bound to improve somewhat, the risks to the growth outlook remained on the downside.”
“Even though outright deflation was not expected, the risk that inflation expectations would get unanchored had clearly risen. Confronted with the heightened risk of too prolonged a period of too low inflation, the Governing Council had to decide on further action.”
“All members agreed that asset purchases, including sovereign bond purchases, were a legitimate part of monetary policy instruments.”
“While additional stimulus could be needed a number of members pleaded for a wait-and-see attitude, given that there was already some additional monetary accommodation in the pipeline and that low inflation was mainly driven by oil prices.”
“Given the controversial nature of sovereign bond purchases, they therefore advocated to use this instrument only as a last resort in the event of an extreme adverse scenario.”
