A written account of that March 10 meeting says “risks of second-round effects appeared to have increased” since the bank’s previous meeting. That can be poison for the economy.
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But quantitative easing and low-interest rate policies haven’t yielded the desired effects, with inflation in the eurozone still light years away from the ECB’s recommended annualized rate of little under 2 percent.
While there is some support within the committee to continue to raise interest rates, I think it’s clear from the minutes that they’re not that close to forming a consensus at this stage, which effectively takes April off the table, as the markets had already assumed. The bank lowered its main benchmark for short-term lending between banks to zero at the March meeting. Even if the central bank increases measures further, it’s unlikely they will have their desired impact if global economies don’t improve, she said. But Bundesbank President Jens Weidmann has warned it “would tear gaping holes in central-bank balance sheets”.
Italy’s central bank chief Ignazio Visco chose to hide behind the assumption that “giving away helicopter money would be hard to implement legally”, adding many governors would have severe moral misgivings about such a move. The Fed started raising rates in December, but since has held off amid fears about slowing growth in China and turmoil on stock and bond markets.
The decision on the stimulus wasn’t unanimous, however. He wrote, “we face uncertainty about the outlook for the global economy … and we face questions about the direction of Europe and its resilience to new shocks”.
In the ECB’s annual report, Draghi also said the bank does not surrender to excessively low inflation and reiterated that it would use more measures within its mandate to address price instability if necessary. The ECB must come up with one set of policies for the entire 19-country eurozone; growth is sluggish for the eurozone as a whole but Germany enjoys low unemployment of 4.3% and on its own would need less stimulus-oriented policies.
Draghi said on Thursday that the European Central Bank will do “whatever is needed” to lift the bloc’s inflation from 0.1% to 2% amid criticism that he’s backed too much stimulus, according to media reports.
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A group of German federal and regional legislators from Chancellor Angela Merkel’s conservatives have reportedly criticised the bank’s efforts as exceeding its powers and lowering interest returns for savers and pension programmes.
