Excerpts from Account of the Governing Council of the European Central Bank, held in Frankfurt am Main on Wednesday and Thursday, 9-10 April 2019:
Turning to euro area activity, members agreed that the slower growth momentum observed in the second half of 2018 was extending into the current year. Incoming data had continued to be weak, especially for the manufacturing sector. The extension of the slower growth momentum had, in part, already been anticipated in the March 2019 ECB staff projections, but it was also acknowledged that some recent data had turned out even weaker than expected. Looking further ahead, members widely shared the view that the more protracted “soft patch” suggested by the latest data remained consistent with the baseline scenario of a return to more solid growth in the second half of the current year. At the same time, it was acknowledged that there was now somewhat less confidence in this baseline scenario and that the range of other possible outcomes had widened. More information would need to be gathered in the run-up to the Governing Council’s June monetary policy meeting, when new Eurosystem staff projections would become available.
The incoming information since the Governing Council’s March 2019 monetary policy meeting had confirmed that the slower growth momentum was extending into the current year and might delay convergence to the Governing Council’s medium-term inflation aim. At the same time, further, albeit slowing, employment gains and rising wages continued to underpin the resilience of the domestic economy and gradually rising inflation pressures. Still, an ample degree of monetary accommodation remained necessary to safeguard favourable financing conditions and support the economic expansion as well as a sustained adjustment in the path of inflation.
While it was acknowledged that contingencies for the Governing Council to act again had not materialised, the point was made that inflation remained uncomfortably below the Governing Council’s inflation aim and market-based inflation expectations had receded, while the projected inflation convergence had been repeatedly delayed. Against this background, the Governing Council reiterated its determination to stand ready to adjust all of its monetary policy tools, as appropriate, to ensure that inflation continued to move towards its aim in a sustained manner. It was emphasised that inflation was ultimately a monetary phenomenon, while structural factors and other policy areas were responsible for determining growth potential and reaping the full benefits of the Governing Council’s monetary policy.
There was broad agreement among members that details on the precise terms of the new series of TLTROs should be considered at one of the Governing Council’s forthcoming meetings. The pricing of the new TLTRO-III operations should be data-dependent and take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook. Some arguments were put forward in favour of pricing the new operations so that they would primarily serve as a backstop, providing insurance in times of elevated uncertainty. Other arguments supported the view that the TLTRO-III operations should also be seen as a potential tool for adjusting the monetary policy stance.
Turning to communication, members widely agreed with the elements proposed by Mr Praet in his introduction. It was appropriate for the Governing Council to acknowledge that the incoming information confirmed that the slower growth momentum was extending into the current year. The baseline scenario of a rebound in growth in the second half of the year remained broadly intact, while the risks surrounding the euro area growth outlook remained tilted to the downside.