ECB To Remain On Hold in 2020
At the December meeting, it had already been communicated that there had been subtle changes to the ECB’s macro-economic assessment, i.e. downside risks were characterised as “less pronounced”. This slightly more optimistic take was reflected in the minutes; it was noted that there were some indications of mild increase in core inflation, that the data pointing to weak but stabilising growth dynamics and that the Industry slump may bottom out before creating spill-over. Interestingly, on the subject of inflation, the bank also noted that “as HICP inflation only partially reflected changes in housing-related costs, inflation measures would likely be higher currently if the cost of owner-occupied housing was accounted for”.
In general though, the tweaks are only very minor. As such, it looks as though the ECB is sticking to its view that we will get a moderate recovery in the long run, but, in the meantime, growth is likely to remain subdued. This is epitomised in the bank’s labelling of risks to the economic outlook as still tilted to the downside but “somewhat less pronounced”.
As such, and as expected, the minutes revealed that there was broad agreement that the current policy stance is appropriate. “The present monetary policy stimulus appeared fully appropriate, lending substantial support to growth and inflation developments. While vigilance on the efficacy of the policy measures and the appropriateness of the monetary policy stance was called for, it was highlighted that the measures should be given time to exert their full impact on the euro area economy” the minutes said.
In that case, it looks as though the upcoming the strategy review could be the most exciting thing we get from the ECB this year, as it increasingly looks as rates are going nowhere in 2020. According to one prominent market commentator, “It would require either a significant growth rebound, with higher wage growth, to consider reducing monetary accommodation, or a worsening of the economy and a further significant drop in inflation expectations to consider yet another round of monetary policy easing. None of these outcomes look like the current preferred scenario for the ECB”.