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ECB minutes: The bottom line is...but... - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 18, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Peter Vanden Houte, analysts at FXStreet explained that while the minutes of the ECB’s January monetary policy meeting didn’t contain strong surprises, they clearly seem to indicate the willingness to act in March.

    Key Quotes:

    "Indeed, on the back of the developments in China and the emerging world, as well as volatility in financial and commodity markets, the Governing Council saw risks to the downside regarding the economic recovery. In the same vein, inflation risks were also tilted to the downside.

    More specifically, the fear of second-round effects in the wake of a continuous undershooting HICP inflation, seems to have become more prominent, with some concerns expressed that recent wage dynamics could already point to incipient second-round effects. Interestingly, on inflation, there was also some discussion that after a prolonged period of undershooting the Governing Council would have to consider a limited period of inflation overshooting in the future, which would suggest monetary policy remaining easy even longer than currently expected.

    The bottom line is that the ECB looks ready to act again in March. Since the January meeting the economic environment has deteriorated and financial stress has barely softened. That said, it is far from clear what the ECB could still do as it is starting to hit the boundaries of what monetary policy can achieve. The current medicine of negative interest rates and QE seems to have lost its magic and the risk is now that an overdose might even have the opposite effect than what the ECB is aiming for. Too much of a good thing, might be a bad thing, also in monetary policy."
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