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, 26-27 April 2017:
With regard to the monetary policy stance, members widely shared the assessment provided by Mr Praet in his introduction that, while the cyclical recovery of the euro area was becoming increasingly solid and downside risks had further diminished, underlying inflation pressures had remained subdued and had yet to show a convincing upward trend.
In their assessment of the outlook for price stability, members generally agreed that overall growth prospects had further improved. At the same time, it was underlined that, given continued uncertainty, the outlook for inflation remained fragile. While deflation risks had virtually disappeared, underlying inflation remained subdued. Moreover, euro area HICP inflation had been volatile recently, largely on account of energy price developments.
Hence, from today’s perspective, there was broad agreement among members that the current monetary policy stance remained appropriate. This entailed keeping the ECB’s policy rates unchanged, as well as confirming both the intended pace and horizon of APP purchases and the Governing Council’s forward guidance on policy rates and the asset purchase programme, including the associated “easing biases”. At the same time, the point was made that it could be acknowledged that recourse to these options for providing further accommodation was becoming less likely, in line with the Governing Council’s evolving assessment.
Looking ahead, it was suggested that, if the euro area recovery kept up its momentum and progress was made in attaining a sustained adjustment in the path of inflation, due consideration would need to be given to adjusting the present formulation of the Governing Council’s forward guidance. It was highlighted that, ultimately, the future path of monetary policy in all its elements depended crucially on the Governing Council’s forward-looking in-depth assessment of the outlook for price stability.
The Governing Council’s communication should be adjusted in a very gradual and cautious manner as, at the current juncture, monetary and financial conditions were particularly sensitive to changes in communication. After a long period of very accommodative monetary conditions, even small and incremental changes in communication could have strong signalling effects when interpreted as heralding a change in the monetary policy stance. A premature and unwarranted tightening of financial conditions could put the prospects of a sustained adjustment in inflation towards the Governing Council’s inflation aim at risk, particularly in an environment of persisting uncertainty.