The ECB monetary-policy accounts published yesterday reveal that the eurozone’s monetary custodians think that the risk of trade conflicts has increased recently. The minutes of the 7-8 March 2018 meeting stress that the possible repercussions for the global economy and for the euro’s external value will ultimately depend on the scale of import tariffs and the scope of any retaliatory measures. However, the transcript contains no concrete assessment of the possible retarding effect on global cyclical activity resulting from this. The central bank’s top echelons agree that risks to the growth outlook are skewed to the downside.
As to the prospects for inflation, the ECB officials concur that there was not yet enough evidence that the inflation rate will converge with the target variable in the medium term. They seemed confident, in principle, that the inflation rate was heading in the right direction but argued that there continued to be numerous uncertainties – for example, about the degree of under-utilisation („slack“) in the European economy or the impact of the recent bout of euro appreciation. The ECB officials consider that extensive monetary stimulus continues to be necessary in order for the economic recovery to progress and for inflation pressure to build up further. The decision to tweak the forward guidance on the asset-purchase programme by removing the „easing bias“ (i.e. the possibility of the programme being increased in terms of size and/or duration) was endorsed by all Governing Council members. The removal of the „easing bias,“ the minutes emphasise, should not be misunderstood as restricting the ECB’s capacity to react to shocks and contingencies, if necessary.
The new transcript confirms the expectation that the eurozone’s monetary custodians are only going to withdraw their monetary medicine in homeopathic doses. In the light of the geopolitical risks which are looming and of the concomitant uncertainties regarding the economic outlook, there is really no reason at the moment to hurry. It seems conceivable that the ECB’s next step will be to cut the link in its guidance between the asset-purchase programme and the inflation target. That would make it possible to agree on shutting down monthly bond purchases by the end of the year.