(Bloomberg) -- European Central Bank officials agreed last month that it would be premature to rule out the possibility of further rate cuts, as the outlook for the economic recovery and inflation was still subject to risks.
“On balance, removing the downward bias on interest rates in the present formulation of the Governing Council's forward guidance was seen as premature,” the account of the Governing Council's March 8-9 meeting published on Thursday showed. “There was still considerable uncertainty surrounding the economic outlook and the robustness of inflation convergence.”
Policy makers agreed that changes in the formulation of the forward guidance “could lead to an undue upward shift in market interest rates and tighten financial conditions to an extent that was not warranted by the prevailing outlook for price stability.”
Members of the Governing Council “broadly” agreed that the current arrangement of a 2.28 trillion euro ($2.43 trillion) quantitative easing program coupled with negative rates remained appropriate, although they also felt the need to acknowledged improving economic conditions. In that light the ECB decided to drop a reference to being ready to use all the instruments available within its mandate.
The inflation projection presented in March came under scrutiny. Some members said that the projection for core inflation -- an increase from 0.9 percent currently to 1.8 percent in 2019 -- “was based on a strong pick up in wage growth” and that “there was no evidence yet of second-round effects on inflation.”
It was noted that the baseline outlook of the projection might turn out to be “overly optimistic,” while the political risks related to U.K.'s exit from the European Union and policies of the new U.S. administration could be “underestimated.”
To contact the reporter on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net.
To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Jeff Black, Fergal O'Brien
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