Share:

The minutes of the ECB’s December meeting show an upbeat assessment of the economic outlook but also reflect doubts about a pick-up in inflation, explains Carsten Brzeski, Chief Economist at ING.

Key Quotes

“The press conference after the ECB meeting was short and not very eventful. The just-released minutes of the meeting, however, show that the discussion behind closed doors must have been livelier and more exciting.”

Highlights of the minutes

There were three interesting points emerging from a quick read through the minutes:

  • Upbeat growth forecast. For the first time, ECB members use the term “upside risk” in connection with the growth outlook. At least in the near term, “some upside risk could result from the US tax reform”.
  • Inflation pick-up still more wishful thinking than reality. The wording of the inflation assessment reflects a very cautious stance by the ECB. Phrases like “the steady absorption of economic slack gave grounds for increased confidence that price pressures would gradually take hold” or “…increased the level of confidence in a sustained return of inflation towards the Governing Council’s aim” in our view illustrate that the ECB is not convinced, yet. This hesitance was also reflected by the statement that “measures of underlying inflation had weakened overall and had yet to show convincing signs of a sustained upward trend” and “Caution was expressed regarding the projected pick-up in underlying inflation over the projection horizon, in particular with respect to the assumed rebound in wage dynamics”.
  • Dissenting views remain. The statement that “a remark was made that a gap appeared to be emerging between favorable economic conditions and a policy stance that remained in a crisis configuration” clearly shows that not all ECB members are satisfied with the current stance.”

Further steps towards the exit?

  • Against all of the above, it is not surprising that the ECB is not ignoring further steps in its tapering (or recalibration) process. Phrase like “the language pertaining to various dimensions of the monetary-policy stance and forward guidance could be revisited early in 2018” or “the view was widely shared among members that the Governing Council’s communication would need to evolve gradually, without a change in sequencing, if the economy continued to expand and inflation converged further towards the Governing Council’s aim” indicate a further adjustment but in our view no abrupt end.”

First another 'lower for longer', then the end

  • We stick to our previous view that the ECB will not stop QE in September but will rather decide on another “lower for longer” beyond September, probably until the end of the year. Interestingly, the ECB is increasingly focused on growth and seems to regard inflation only as a derivative of growth developments. Judging from previous experiences, to get an inflation rate sustainably around 2%, the Eurozone economy needs to have a positive output gap. This could, but does not necessarily have to, happen in the course of 2018.
  • Also, it is obvious that the ECB’s balancing act between uniting the Governing Council and not distorting markets on the way towards the exit is a difficult one. While the ECB had actually tried to hush speculation with the October decision for “lower for longer”, some ECB officials’ talks are clearly undermining this intention. In this regards, next week should be interesting when both Jens “the hawk” Weidmann and Benoit “first proponent now advocate for a September end” Coeure will have public appearances.”
Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended content


Follow us on Telegram

Stay updated of all the news

Join Telegram

Recommended content

Editors’ Picks

AUD/USD licks its wounds below 0.6900 with eyes on RBA Interest Rate Decision, Fed’s Powell

AUD/USD licks its wounds below 0.6900 with eyes on RBA Interest Rate Decision, Fed’s Powell

AUD/USD bounces off the 0.6860 support confluence, picking up bids to around 0.6885 during early Tuesday in Asia as trader brace for the Reserve Bank of Australia’s (RBA) monetary policy meeting. 

AUD/USD News

EUR/USD stays pressured towards 50-DMA support

EUR/USD stays pressured towards 50-DMA support

EUR/USD licks its wounds at the lowest levels in a month, depressed around 1.0725 during early Tuesday in Asia. That said, the major currency pair dropped during the last consecutive three days.

EUR/USD News

Gold eyes more weakness below $1,860 as yields soar, Fed Powell’s speech eyed

Gold eyes more weakness below $1,860 as yields soar, Fed Powell’s speech eyed

Gold price is displaying a sideways auction after building a cushion around $1,860.00 in the early Asian session. The precious metal is expected to display more weakness after surrendering immediate support as US Treasury yields are gaining dramatically.

Gold News

Hedera Hashgraph: A potential bullrun with caution

Hedera Hashgraph: A potential bullrun with caution

Hedera Hashgraph price shows potential to continue its uptrend. The consolidation phase could be viewed as a buying opportunity in hindsight. However, the risk to the downside should be considered.

Read more

Reserve Bank of Australia Preview: No choice but to keep hiking rates Premium

Reserve Bank of Australia Preview: No choice but to keep hiking rates

The Reserve Bank of Australia (RBA) will announce its monetary policy decision on February 7, with the Board expected to pull the trigger by another 25 basis points (bps). The RBA has been among the first to reduce the pace of tightening, opting for 25 bps hikes in October.

Read more

Forex MAJORS

Cryptocurrencies

Signatures