Shortly before the release of minutes from Mario Draghi’s parting meeting, the Financial Times published a leaked report Thursday morning claiming that Mario Draghi moved ahead with plans to relaunch an “open-ended QE” version of the ECB’s APP over the objections of an influential committee inside the central bank, setting the stage for his successor, Christine Lagarde, to confront these divisions as she begins her term at the central bank’s helm.
Though the minutes stipulated that a ‘clear majority’ supported Draghi’s plan, this was one of the rare examples from the president’s five-year term where there was such strident dissent on the central bank’s governing council.
Concern was expressed that not delivering sufficient stimulus, including through the APP, might trigger a reversal of the current favourable financial conditions. By contrast, restarting net purchases would provide a strong signal of the Governing Council’s determination and willingness to act in the light of the current subdued inflation outlook and the potential risk of an unanchoring of inflation expectations.
There was clearly a strong minority that supported a deeper rate cut of 20 bp, as opposed to the 10 bp authorized as part of the central bank’s stimulus, instead of reviving a more limited and size (but unlimited in scope) APP.
A very large majority of members agreed with Mr Lane’s proposal to lower the rate on the deposit facility by 10 basis points to -0.50%, which – together with the reinforced forward guidance – would act on the whole yield curve, especially in the short to medium-term segments, complementing the effects of net asset purchases on the long end of the curve. In this way, the measure would address the high level of short-term uncertainties that currently prevailed and help preserve very favourable financial conditions. While a few members expressed a readiness to consider lowering the rate on the deposit facility by 20 basis points at the current meeting, in particular as part of a package that would exclude net asset purchases, other members felt unable to support a cut of 10 basis points, as they were concerned about the possibility of increasingly adverse side effects from additional rate cuts.
According to the FT, the bank’s monetary policy committee, on which technocrats from the ECB and the 19 eurozone national central banks sit,