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, 12-13 September 2018:
Risks to the growth outlook could still be assessed as broadly balanced. At the same time, risks relating to the threat of protectionism, vulnerabilities in emerging markets and financial market volatility had gained more prominence recently.
Members also exchanged views about the implications of recent developments in emerging market economies. It was noted that the depreciation of these economies’ currencies had so far been relatively contained and was primarily focused on countries that had weak fundamentals, relatively high foreign debt levels and, in particular, exposure to the US dollar. More generally, the point was made that growth in emerging market economies had made a sizeable positive contribution to global activity in the past decade, and that a natural adjustment was taking place. At the same time, there were indications that the euro area was moving away from reliance on external demand towards more domestic sources of expenditure, which should increase its resilience.
On the whole, the euro area economy was seen to have shown a considerable degree of domestic resilience so far and to have become more robust in recent years, in the context of higher capacity utilisation rates and partly as a result of significant reforms undertaken by many euro area countries since the financial crisis. However, at the same time, caution was seen as warranted since heightened uncertainty in the global environment might yet impact the euro area more significantly over time.
Against this background, risks to the euro area growth outlook were generally assessed to have remained broadly balanced overall, with risks relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility having gained more prominence recently. While it was remarked that a case could also be made for characterising the risks to activity as now being tilted to the downside given the clear prevalence of downward global risks, it was agreed that the assessment that risks were broadly balanced should be maintained, also as the underlying strength of the economy was judged to be mitigating downside risks to activity.
In the light of the confirmation of the medium-term inflation outlook, members agreed that the June 2018 monetary policy decisions remained appropriate and called for a reaffirmation of the prevailing policy posture. Accordingly, all members supported the proposal made by Mr Praet in his introduction that, in line with the anticipation expressed at the Governing Council’s June monetary policy meeting, the monthly pace of net asset purchases would be reduced to €15 billion from October to December 2018. It was also seen as prudent to reiterate the Governing Council’s anticipation that – subject to incoming data confirming the medium-term inflation outlook – net purchases would then end. This was seen to be consistent with the Governing Council’s data-driven approach to monetary policy and fully in line with the decisions taken at the Governing Council’s June monetary policy meeting. It was underlined that uncertainties emanating from rising protectionism, vulnerabilities in emerging markets and financial market volatility had become more prominent recently, which continued to call for prudence in the formulation of the monetary policy stance.