European Central Bank policymakers meeting last month discussed various scenarios to extend asset purchases into next year and also expressed widespread concern about the euro’s rapid rise, accounts of the meeting showed on Thursday.
Policymakers from the 19 euro zone countries discussed several scenarios to prolong asset purchases, weighing any trade-off between the size and duration of purchases, with some arguing that any final decision should include a cut in asset buys.
With bond purchases due to expire at the end of the year, time for a decision is running out and markets now expect buys to be cut by a third to 40 billion euros (35.67 billion pounds) a month and for the programme to be extended by six or nine months.
“Members also discussed some general trade-offs inherent in various scenarios for the future recalibration of the asset purchase programme and, in particular, the choice between the pace and the intended duration,” the ECB said, describing the discussion as preliminary.
“Within the framework of the Governing Council’s forward guidance, the benefits from a longer indented purchase horizon, combined with a greater reduction in the pace, were compared with those from a shorter period of purchases and larger monthly volumes,” the minutes said.
Rate-setters also noted that any change should apply to its entire policy package and should not be limited to any particular component, especially the size or duration of asset buys.
While policymakers expressed increased confidence about the path of inflation, some argued that the negative impact of the euro’s rally may have been underestimated, creating downside risks for some inflation projections.
Indeed, chief economist Peter Praet called for “close monitoring” of the exchange rate, a stronger phrase than was eventually accepted when policymakers opted for only “monitoring”.
Source: Reuters (Reporting by Balazs Koranyi; Editing by Gareth Jones)