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.
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.”
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