ECB Meeting Accounts: Concerns were voiced over risks related to euro exchange rate

The European Central Bank's (ECB) Governing Council voiced concerns over risks related to developments in the euro exchange rate that might have a negative impact on the inflation outlook, the ECB's December Monetary Policy Meeting Accounts showed on Thursday.

Market reaction

The EUR/USD pair edged slightly lower with the initial reaction and was last seen losing 0.1% on the day at 1.2145.

Additional takeaways as summarized by Reuters

"It was observed that the December Eurosystem staff inflation projections were far below the governing council’s inflation aim."

"Pandemic Emergency Purchase Programme (PEPP) more efficient than a rate cut in the current pandemic conditions characterised by high uncertainty."

"Benefits of PEPP purchases outweighed the potential costs."

"The argument was made that a further lowering of yields from their already highly accommodative levels could be expected to have only marginal effects on growth and inflation."

"Members expressed broad agreement with the monetary policy package proposed by Mr Lane in his introduction."

"Keeping favourable financing conditions in such an environment could even accelerate the dynamics of the recovery."

"It was widely considered an appropriate and proportional response to the prevailing type of shock to increase the horizon of net purchases under the PEPP."

"Risks of an unanchoring of inflation expectations were salient."

"A more moderate increase in the PEPP envelope was advocated by a number of members."

"Some arguments were also made in favour of a larger envelope.."

"It was argued that the focus on preserving favourable financing conditions implied a move away from a constant monthly pace of purchases."

"No clear evidence, so far at least, that negative competitiveness effects were perceived by investors to significantly counteract the positive global demand effects implied by a weaker US dollar."

"A number of reservations were expressed with regard to the proposed increase in TLTRO borrowing allowance to 60%."