ECB Minutes: Mounting opposition and headwinds to further easing – Nordea

Inge Klaver, analyst at Nordea Markets, suggests that ECB’s September monetary policy account confirmed the view of a divided council, concerned about a slowing economy.

Key Quotes

“An unprecedented divide within the ECB council has become increasingly clear. A number of members of the Governing Council have publicly voiced their disagreement with resuming QE, Sabine Lautenschläger has resigned seemingly out of protest, and the Council ignored advice against QE from officials preparing the policy options.”

“Although all members agreed that it was time to act, the discussion of policy considerations reveals that there were varying levels of agreement for the separate policies announced, ranging from “majority” to “clear majority” to “very large majority”.”

“As already voiced by several members right after the meeting, there was opposition to the bond-buying. “A number of members assessed the case for renewed net asset purchases as not sufficiently strong, either because they deemed them to be a less efficient instrument, given the prevailing compression of term premia, or because they deemed them to be an instrument of last resort which should only be deployed in the event of more severe contingencies and which was not warranted in the light of the current outlook.”

“Also the policy proposal for the introduction of the two-tier system received some opposition, but was in the end decided on with a “A majority of members”. The opposing mostly arose from the fact that a combination of tiered rates and TLTROs was perceived as excessive.”

“The rate cut seemed to be more of a done deal, at least for the “very large majority”. Even a few members proposed cutting by 20bps, so more than the decided 10bps, as an alternative to the net APP.”

“Overall, the Governing Council members agreed about the dire state of the Euro-area economy and agreed about the need for a comprehensive package of monetary easing. The huge divide that has been the general perception in the public since the September meeting seems to be more on the details of the individual instruments and preference for some instruments over others. In general, the ECB remains dovish. We still expect another easing package in December.”