Initial concerns about negative interest rate policy are becoming apparent in the ECB

The summary of the ECB’s last Council meeting in December (accounts) does not provide any indication of an early change in the monetary policy stance. The monetary watchdogs continue to expect continued weak growth momentum in the euro area, but at least the first signs of economic stabilisation have been identified. In this context, reference is made to the rapprochement in the trade dispute (China/USA), which has made an escalation of the conflict less likely. However, as uncertainty factors (including brexite) continue to exist, the economic outlook is still subject to downside risks. With regard to the inflation trend, the monetary authorities are convinced that a stronger upward trend in prices can be expected in the coming months. The ongoing economic growth and solid wage development would support this trend.

In the course of the discussions, some Council representatives suggested that the causes of the persistently low level of inflation should be examined in more detail. One of the issues discussed in this context was the need to take greater account of the costs of owner-occupied housing. Another point of discussion was the extent to which the effects of climate policy („European Green New Deal“) need to be taken more into account when drawing up inflation and economic projections. In this context, Council representatives also urged that efforts to understand the economic consequences of climate change should be intensified. We also consider it remarkable that some Council representatives stressed the need to pay more attention to possible undesirable side-effects of current monetary policy. However, despite these tentative concerns, a change of monetary policy along the lines of the Swedish central bank (Riksbank) does not seem conceivable at present.

Rather, the accounts indicate that for the time being the monetary authorities are adopting a wait-and-see monetary policy stance in order to observe how the recently adopted monetary policy stimulus (reduction of deposit rates/revival of the APP) is working. Moreover, in the coming months the focus of the monetary authorities is likely to be less on adjusting monetary policy and more on revising the monetary policy strategy.

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