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, 24-25 January 2018:
The effect on the euro area economy would also depend on the extent and persistence of the exchange rate appreciation. In this context, it was remarked that the euro exchange rate had been subject to pronounced swings in the past and that the rather limited ability of economists to predict future developments in the exchange rate, including the risk of a further euro appreciation, needed to be recognised.
Concerns were also expressed about recent statements in the international arena about exchange rate developments and, more broadly, the overall status of international relations. The importance of adhering to agreed statements on the exchange rate was emphasised, such as that included in the October 2017 communiqué of the 36th meeting of the IMF’s International Monetary and Financial Committee, which stated that excessive volatility or disorderly movements in exchange rates could have adverse implications for economic and financial stability, and that members would refrain from competitive devaluations and would not target their exchange rates for competitive purposes.
Members widely acknowledged the need for steadiness in communication, which entailed re-emphasising confidence in the inflation outlook, while maintaining a policy stance based on the broad spectrum of policy instruments in place and the established sequencing of policy instruments. In this context, it was remarked that communication on monetary policy would continue to develop according to the evolving state of the economy in line with the ECB’s forward guidance, with a view to avoiding abrupt or disorderly adjustments at a later stage. However, changes in communication were generally seen to be premature at this juncture, as inflation developments remained subdued despite the robust pace of economic expansion. Therefore, the Governing Council reiterated its steadfast commitment to its price stability objective and, specifically, to delivering on its promise to secure a sustained return of inflation rates to levels below, but close to, 2%. It was emphasised that monetary policy had to remain patient and persistent, while prudence should be exercised with respect to the Governing Council’s communication.
Members broadly agreed that any further evolution of the Governing Council’s communication on monetary policy would be gradual and would proceed in line with improvements in the medium-term inflation outlook. Communication would evolve naturally in line with the ECB’s forward guidance should inflation make further progress towards the Governing Council’s inflation aim as set out in the established criteria for a sustained adjustment in the path of inflation. The language pertaining to the monetary policy stance could be revisited early this year as part of the regular reassessment at the forthcoming monetary policy meetings. In this context, some members expressed a preference for dropping the easing bias regarding the APP from the Governing Council’s communication as a tangible reflection of reinforced confidence in a sustained adjustment of the path of inflation. However, it was concluded that such an adjustment was premature and not yet justified by the stronger confidence. It was also recalled – as on previous occasions – that even when net purchases were terminated, the monetary policy stance would remain highly accommodative, as the evolution of inflation would remain conditional on reinvestments continuing for an extended period of time and on policy rates remaining at their present levels well past the end of the ECB’s net asset purchases.