ECB’s Monetary Policy Meeting – Draghi To Take A Cautious Stand

The Central Bank removed the crisis-era monetary stimulus program by ending its 2.6 trillion euro quantitative easing program.

The meeting minutes showed that the policymakers debated highlighting the delicate balancing act. Major central banks withdrew the crisis era support and tightened monetary policy. There are fears of a slowdown in the global economy and institutions act accordingly.

The ECB’s governing council members debated on the language of the monetary policy. A change in the outlook went from “balanced” to “tilted to the downside.” The minutes revealed details on the worsening conditions in the Eurozone and the global economy.

However, a compromise was struck with the final message coming out as the risks being described as being balanced but “moving to the downside.

The ECB held its meeting in December when it announced an end to its quantitative easing program. The announcement came amid the German economy slowing in the third quarter. This also dragged the Eurozone’s economy lower amid fading prospects for any rebound in economic activity.

ECB looking for opportunities

While the Eurozone economy is still in expansion, the conditions have not worsened yet for the ECB to reactivate its stimulus program.

“It was underlined that the situation remained fragile and fluid, as risks could quickly regain prominence or new uncertainties could emerge,” the ECB said in the minutes.

As a precaution, officials discussed revisiting the cheap, multi-year loans to banks. Also known as the Targeted Long Term Refinancing Operations, the ECB previously used the TLTRO’s during the height of the financial crisis. The discussion on launching the TLTRO comes as the ECB ended its QE program in December.

At the December meeting, the ECB President Mario Draghi cautioned about the growing risks to the economy amid weaker data. The minutes showed that policymakers expect Draghi to be even more cautious. Some members called for a new round of cheap credits to the banks. This is a crucial source of lending especially for fragile Eurozone economies such as Italy, Portugal, and Spain.

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