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Some ECB Officials Saw Inflation as ‘Uncomfortably’ Low in April
2019-05-23 11:30:00.6 GMT

By Carolynn Look
(Bloomberg) — Some European Central Bank officials
expressed concern at their April policy meeting that euro-area
inflation remains too low and expectations of price growth are
falling, after years of failing to reach their goal.
“While it was acknowledged that contingencies for the
Governing Council to act again had not materialized, the point
was made that inflation remained uncomfortably below the
Governing Council’s inflation aim,” the ECB said in the account
of its April 9-10 meeting. “Some concern was expressed that
market-based inflation expectations had shifted downward in
parallel with actual inflation and across all maturities.”
Officials held off on further stimulus measures at the
time, but did agree to assess the pricing needs for a long-term
bank funding program they plan to launch later this year. Some
policy makers argued that the tool should be seen as a way to
adjust the monetary policy stance, while others said it should
serve primarily as a backstop for banks in times of heightened
uncertainty.
The bank loans are among many tools deployed by the ECB in
the last decade to support lending to the real economy amid
feeble growth. A slowdown since the second half of last year —
driven mainly by the industrial sector amid global uncertainties
and trade tensions — has raised the question over what tools
policy makers have available should the situation deteriorate
further.
Read more: Euro-Area Economy Extends Subdued Growth Amid
Stagnant Demand
Policy makers also agreed in April to analyze whether
negative interest rates are having a detrimental effect on
banks’ ability to pass low borrowing costs on to customers, a
pledge that was included in President Mario Draghi’s
introductory statement at his press conference. That reference
signaled to some market participants that the ECB might be
readying measures such as tiering to mitigate the impact from
negative rates, allowing them to be cut further if needed.
The issue has since lost momentum, with a number of policy
makers publicly questioning the merit of a system that would
exempt some bank deposits from the negative rate.
ECB policy makers also stuck to their view that growth will
likely pick up again later this year, making the need for
further support measures less urgent, though the account
suggested that doubts over the outlook are starting to creep in.
"Members widely shared the view that the more protracted
soft path suggested by the latest data remained consistent with
the baseline scenario of a return to more solid growth in the
second half of the current year,” the account said. “At the same
time, it was acknowledged that there was now somewhat less
confidence in this baseline scenario.”
ECB officials will next meet to set policy on June 6 and
update their economic projections.

To contact the reporter on this story:
Carolynn Look in Frankfurt at clook4@bloomberg.net
To contact the editor responsible for this story:
Paul Gordon at pgordon6@bloomberg.net