Frankfurt: The European Central Bank should revisit its communication stance in early 2018 and gradually adjust its language to reflect improved growth prospects, the accounts of the bank’s December policy meeting showed on Thursday.
A change in the ECB’s policy message would likely be taken by investors as a sign that rate-setters are getting ready to wind down their 2.55 trillion euros bond-buying programme, the key plank of their stimulus policy for the past three years.
“The language, pertaining to various dimension of the monetary policy stance and forward guidance could be revisited early in the coming year,” the accounts showed, referring to early 2018. “The view was widely shared that... communication would need to evolve gradually, without a change in sequencing.”
Sideling his critics, ECB President Mario Draghi stuck to his pledge last month to keep money pouring into the euro zone economy for as long as needed, despite improved growth and inflation prospects.
But the accounts showed policymakers thought that their communication on the future path of interest rates, currently at record lows, would gain more importance -- a signal bond purchases were slowly losing prominence as a policy tool.
“As progress was made toward a sustained adjustment in the path of inflation, the relative importance of the forward guidance on policy rates would increase,” policymakers said, noting that a further easing of financial conditions was not warranted.
While Draghi acknowledged better growth in December, he rebuffed calls to tweak the bank’s policy message, keeping asset buys open ended and even maintaining the pledge to increase stimulus, if necessary.
Still, some policymakers are now openly discussing life after the quantitative easing scheme ends, suggesting growing support for a decision to wind down the programme later this year.
The accounts suggested the first change might be dropping a pledge to buy bonds until inflation heads back to target.
“It was also seen as warranted to reflect on how to transition gradually from the present conditionality focused on asset purchase programme net purchases to a broader concept of forward guidance comprising various dimension of the monetary policy stance,” the ECB said in the accounts.
Launched three years ago, the asset purchases depressed borrowing costs, staving off the threat of deflation and putting growth on its best run since before the bloc’s debt crisis.
But critics say that the scheme has run its course and in a period above trend growth, artificially low borrowing costs risked more damage than good by inflating asset price bubbles.
Running at 30 billion euros per month at least until the end of September, the bond buys are expected by investors to end this autumn after a brief tapering period. But interest rates, still well into negative territory, are not expected to rise until around mid-2019.