ECB keen to contain stimulus hopes at meeting after Brexit vote

Latest data confirms modest uptick in inflation in July

European Central Bank president Mario Draghi. The ECB governing council is due to meet again on September 7th.  Photograph: Yves Herman/Reuters

European Central Bank president Mario Draghi. The ECB governing council is due to meet again on September 7th. Photograph: Yves Herman/Reuters

 

European Central Bank rate-setters agreed not to discuss any policy change at their July meeting and to keep market hopes for more stimulus in check, despite rising risks linked to Britain’s vote to leave the European Union, minutes showed on Thursday.

The accounts of the meeting suggested the ECB’s governing council, which will meet again on September 7th-8th and examine new inflation forecasts, was in no rush to act, taking comfort from a calmer-than-expected market reaction to the Brexit vote even though risks had “clearly increased”.

Downside risks

“It was widely felt among members that it was premature to discuss any possible monetary policy reaction at this stage,” the ECB said. “More time was needed to assess the incoming information over the coming months, although downside risks had clearly increased.”

Since that meeting, survey data has failed to provide any clear sign the Brexit vote had damaged the euro-zone economy and financial markets have remained relatively calm.

A modest uptick in euro-zone inflation in July was confirmed by data on Thursday. Euro-zone prices rose 0.2 per cent year on year, although that remained well below the ECB’s target of near 2 per cent.

ECB rate-setters agreed they needed to reiterate their willingness to act if necessary but wanted to avoid stoking market expectations for further stimulus too far.

Readiness to act

“Overall, the view was widely shared that the governing council needed to reiterate its capacity and readiness to act, if warranted, to achieve its objective, using all the instruments available within its mandate, while not fostering undue expectations about the future course of monetary policy,” the ECB said.

The ECB faced a market backlash last December when it delivered easing measures that fell short of investors’ sky-high expectations.

The bank’s rate-setters highlighted that the main consequences of Brexit would be political, and called on EU policymakers to tackle the uncertainty surrounding Britain’s negotiations to leave the EU, which have not even started.

“A strong call was made for European policymakers to contain political uncertainty surrounding the UK exit negotiations and to provide a clear vision for the future path of the European Union and its integration process,” the ECB said. – (Reuters)