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ECB UPDATE: Monpol Reassessment Must be Gradual, Cautious

MNI (London)
--Adds Details and Context Throughout
By Christian Vits
     FRANKFURT (MNI) - European Central Bank policymakers underlined in their
most recent policy meeting on Sept 7 the need for monetary policy to remain
"persistent and patient".
     "Any reassessment of the monetary policy stance should proceed in a very
gradual and cautious manner, while maintaining sufficient flexibility, also in
the light of prevailing uncertainties with respect to the inflation outlook and
financial conditions," Governing Council members agreed, according to the
accounts of the meeting, released Thursday.
     They said that "a very substantial degree of monetary policy accommodation
was still needed" for inflation to converge sustainably to levels in line with
the ECB's target. "Discomfort was widely expressed" about the "very prolonged
period" over which inflation had been and still was expected to remain distant
from the bank's aim.
     On Oct 26, the ECB Governing Council will meet again and discuss whether
and when it will wind down its stimulus measures, with the discussions coming
against the background of solid growth and falling unemployment across the euro
zone. But inflation in the currency bloc remains below the ECB's target of
"below but close to" 2%. Eurozone inflation held steady in September at 1.5%,
unchanged from the previous month.
     Looking ahead, the bank expects inflation rates to "temporarily decline
towards the turn of the year", mainly reflecting base effects in energy prices.
Still, "measures of underlying inflation have ticked up moderately in recent
months, but have yet to show convincing signs of a sustained upward trend," ECB
president Mario Draghi said after the last meeting in September.
     Policy makers made the point that the overall degree of accommodation was
determined by the combination of all monetary policy measures deployed by the
ECB. They noted that the Governing Council's assessment of progress regarding a
sustained adjustment in the path of inflation should apply to the "overall
design and direction" of the ECB's policy stance as a whole, "and not with
reference to any particular instrument in isolation, such as the duration and
pace of APP purchases."
     Council members also noted "concerns" about a possible over appreciation of
the euro. "Concerns were expressed, notably about the recent momentum," the
accounts said. Downside risks to the growth outlook were seen mainly related to
"global factors and developments in foreign exchange markets", the accounts
     Overall, members underlined a strong growth momentum in the euro zone with
risks for the expansion being "broadly balanced, "but with still subdued
inflation dynamics." They generally agreed that economic growth was still
conditional on continued favourable financing conditions, "while it was also
remarked that there were indications that the expansion was becoming
increasingly self-sustaining."
--MNI Frankfurt Bureau; +49 69 97782671; email:
[TOPICS: M$X$$$,M$$EC$]
MNI London Bureau | +44 203-865-3812 |

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