Friday, September 24

ECB accounts show extensive debate over guidance

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FRANKFURT — European Central Bank policymakers held an extensive debate over their new guidance on interest rates and revised the proposal several times to soothe concerns and objections by policymakers, the accounts of their July 22 meeting showed on Thursday.

Policymakers agreed on a new guidance at the meeting, which promises an even longer period of unchanged or lower interest rates and ties the first hike to an even more pronounced rise in inflation.

But that agreement only came after an especially tense meeting in which policymakers redrafted the guidance twice to find a suitable compromise after an unusual number of objections were raised.

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“A large majority of members indicated that they could support the revised forward guidance proposal,” the accounts showed. “At the same time, a few members upheld their reservations, as the amended formulation did not sufficiently address their concerns.”

In the end only two policymakers, the German and Belgian central bank chiefs, opposed the wording, which stipulates that rates would not rise until the ECB sees inflation reaching 2% “well ahead” of its projection horizon and would stay on target durably.

Inflation has missed the ECB’s target for nearly a decade and policymakers expect price growth to remain anemic for years to come, suggesting no rate hike in the first half of the current decade.

The ECB will next meet on Sept. 9 and will have to decide whether to maintain an elevated volume of bond purchases or allow them to decline given a drop in yields and a weakening of the euro since the last policy meeting. (Reporting by Balazs Koranyi ; Editing by Toby Chopra)