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, 18-19 January 2017:
With regard to the monetary policy stance, members widely shared the assessment provided by Mr Praet in his introduction that, while inflation had increased lately, largely owing to base effects in energy prices, underlying inflation pressures had remained subdued and signs of a convincing upward trend were still lacking. It was broadly agreed that a very substantial degree of monetary accommodation continued to be needed for euro area inflation pressures to build up and to secure a sustained return of inflation rates towards levels below, but close to, 2% over the medium term.
Members agreed on the appropriateness of the current monetary policy stance and recent developments were generally seen to vindicate the decisions taken by the Governing Council at its meeting in early December 2016. While there had been some positive news since that meeting, the fundamental picture remained largely unaltered and there was no room for complacency, as risks and uncertainties had not receded substantially, notably those related to the political environment at the global level and within the euro area.
In this context, it was recalled that, in line with the Governing Council’s monetary policy strategy and past communication, monetary policy had to be forward-looking and oriented to the medium term, meaning that the Governing Council would look through the volatility in short-term data if judged transient and to have no implication for the medium-term outlook for price stability. Therefore, there was broad agreement to look through recent upturns in headline inflation driven by energy prices, while carefully monitoring potential indirect and second-round effects. This was seen to be fully consistent with the Governing Council’s past decisions and established approach to treating temporary changes in inflation on the upside and on the downside.
Against this background, it was widely agreed that it was imperative to maintain a very substantial degree of monetary accommodation for inflation pressures to build up and durably support headline inflation. Otherwise, recent encouraging developments in inflation expectations and the prospects for a sustained adjustment in inflation towards the Governing Council’s inflation aim could be put at risk. Therefore, the Governing Council was seen as well advised to remain patient and maintain a “steady hand” to provide stability and predictability in an environment that was still characterised by a high level of uncertainty. At the same time, the point was made that the window of opportunity provided by a prolonged period of favourable monetary and financial conditions needed to be used by other policy areas to bolster sustained growth, namely by speeding up structural reforms.