Excerpts from the Account of the monetary policy meeting of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 13-14 December 2017:
As regards communication, agreement was generally expressed with the proposals made by Mr Praet, suggesting broad continuity in the Governing Council’s communication at the present stage, while emphasising the greater confidence in the inflation outlook. While a few members recalled their reservations concerning some elements of the decisions taken at the October monetary policy meeting, the merits of a steady hand in communication were widely acknowledged. This implied confirming the October decisions and the associated communication, which had been well understood by market participants. Changes in communication were generally seen to be premature at this juncture, with caution still warranted. Signals that could trigger an unwarranted tightening of financial conditions needed to be avoided, as they could jeopardise progress towards the Governing Council’s inflation aim.
At the same time, it was argued that communication needed to evolve gradually in step with improving economic data and a further easing of financial conditions was not regarded as warranted. From this perspective, it was important for the forward guidance to be updated in line with evolving data, with a view to avoiding more abrupt or disorderly adjustments at a later stage. It should be highlighted that the stronger than expected expansion of the euro area economy had further reduced the likelihood of adverse economic outcomes and, hence, had bolstered the Governing Council’s confidence in the eventual attainment of its inflation aim. More generally, the Governing Council’s emphasis on data dependency in its approach to forward guidance was recalled. In this context, it had to be stressed that the improved economic environment was, in part, related to the ECB’s monetary policy measures, which continued to pass through to the real economy.
Looking ahead, the view was widely shared among members that the Governing Council’s communication would need to evolve gradually, without a change in sequencing, if the economy continued to expand and inflation converged further towards the Governing Council’s aim. The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year. In particular, as progress was made towards a sustained adjustment in the path of inflation, the relative importance of the forward guidance on policy rates would increase, as suggested by Mr Praet in his introduction. From this perspective, the Governing Council’s forward guidance framework would evolve naturally, in line with the established sequencing between the APP and interest rate guidance. It was suggested that the Governing Council’s communication should be adjusted gradually over time to avoid sudden and unwarranted movements in financial conditions. In this regard, it was also seen as warranted to reflect on how to transition gradually from the present conditionality focused on APP net purchases to a broader concept of forward guidance comprising various dimensions of the monetary policy stance. In any event, it was recalled that even when the net purchases ceased, the monetary policy stance would remain highly accommodative via the accumulated stock of acquired assets, future reinvestments and the forward guidance on policy rates, which would continue to accompany the economic cycle and the development of inflation along a sustained adjustment path.