ECB head Office - Photo by European Central Bank

JAKARTA (TheInsiderSories) – European Central Bank (ECB) officials signaled at their June policy meeting that they will consider injecting fresh stimulus into the eurozone economy soon in light of weak inflation data and mounting global uncertainties, according to minutes of the meeting published on Thursday (07/11).

The minutes suggest that ECB policymakers are preparing to act to support the region’s export-focused economy by cutting the bank’s key interest rate, currently set at minus 0.4 percent, or restarting its US$2.92 trillion bond-buying programs.

The bank’s governing council put off any rate hike for at least a year at its June 5-6 meeting and President Mario Draghi emphatically opened the door to more stimulus in the following weeks.

“There was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the governing council needed to be ready and prepared to ease the monetary policy stance further by adjusting all of its instruments,” the minutes said. Measures to be considered included rate cuts and fresh bond purchases, the notes said.

Major central banks have shifted their focus toward interest-rate cuts in recent weeks amid lingering international trade tensions and a softening in key emerging markets such as China. Federal Reserve (Fed) Chairman Jerome Powell signaled in Congressional testimony on Wednesday that the United States (US) central bank could cut interest rates as soon as this month.

With a trade war between the US and China hurting eurozone exporters and the Fed widely expected to cut its interest rate, the ECB is coming under pressure to ease its own policy again.

Previously, Draghi has suggested the eurozone economy would need to soften further before the bank would act. Since then, Draghi has hardened his tone, signaling that fresh stimulus is on the way unless the economic outlook improves. But it wasn’t clear if the rest of the rate-setting committee would support such a move.

The minutes suggest they would. They reveal deep concerns among rate-setters that global uncertainties will weigh on the region’s economy for some time.

The officials highlighted a downward shift in market expectations of future inflation rates, which have fallen “near the previous lows recorded on September 2016.” The ECB has previously used weakening inflation expectations to justify aggressive stimulus measures.

“Inflation was still projected to reach only 1.6 percent in 2021, which was seen to remain some distance away from the governing council’s inflation aim,” the minutes said. The ECB aims to keep inflation just below 2 percent over the medium term.

“It was hence considered important for the governing council to demonstrate its determination to act and to further prepare for adverse contingencies in the period ahead,” the minutes said.

The account also showed that the ECB was considering more strategic moves if inflation remained low and that it planned to emphasize that an overshoot, as well as an, undershoot of inflation would be tolerated.

Written by Willy Matrona, Email: theinsiderstories@gmail.com