The European Central Bank will be releasing the meeting minutes from the July 25th monetary policy meeting. Typically, meeting minutes don’t reveal much information during periods where the central bank is maintaining the status quo.
However, this time, the ECB announced plans to restart its monetary policy easing program. The central bank, nevertheless, did say that it expects interest rates to remain at the current levels at least through the first half of next year.
ECB President Mario Draghi noted at the press conference that a significant amount of stimulus might be necessary. But he ruled out the notion that the euro area is slipping into a recession.
The eurozone’s economy has been in a steady decline since late last year. This came just after GDP growth was starting to show signs of rising. As a result, the ECB ended its quantitative easing program in December 2018. But that seems to have been a premature move in hindsight.
Economic growth faltered due to a mixture of factors. Firstly, it started with the auto-emission rules which hit the German auto industry hard.
As the powerhouse of Europe, the slowdown in Germany soon started to feed into other regional economies. Inflation, which had shown signs of rising, also started to fall. Furthermore, global headwinds started to rise.
The US and China trade spat have dented sentiment all over. This is evident from the slower manufacturing across major economies, including the US, China, and the eurozone.
For the moment, the ECB joins the ranks of other central banks such as the RBA, the RBNZ, and the Fed to a certain extent, in giving dovish forward guidance. The Bank of Canada remains the sole central bank which hasn’t yet cut interest rates so far.
Focus on ECB’s QE Plans
The release of the monetary policy meeting minutes will reveal some insights into the central bank’s intentions.
At the July meeting, ECB officials said they were looking at various options. These include the QE program, the Targeted Long Term Refinancing operations or TLTRO program.
Among the options, they also discussed introducing a tiered system for reserve remuneration, including options for the size and composition of the new asset purchase program.
In both the meeting and the press conference, ECB Chief Mario Draghi confirmed that there were some reservations among officials of the governing council. A few members in the past have been opposed to easing measures.
The ECB first started its QE program in March 2015. The bank launched the program in a bid to stoke inflation and growth. Under the QE program, the central bank started purchasing government and corporate bonds.
As the ECB’s asset purchases rose to 2.6 trillion euros, inflation was responding. The eurozone’s consumer prices peaked to 2.1% in October 2018. However, inflation has since started to ease off.
Meanwhile, the ECB held its asset purchases at 2.6 trillion before announcing an end to QE in December 2018.
The timeline for deciding on which program to start will most likely come at the September ECB meeting. This also comes at a crucial time when Mario Draghi’s tenure as the head of the ECB will be ending.
However, the proposed candidate, Christine Lagarde, head of the International Monetary Fund, the IMF is expected to see a continuation of the current policy. The impact of today’s monetary policy meeting minutes could lay the foundation for investors.
Investors will be looking to recalibrate their positions in the run-up to the September ECB meeting.