MNI BRIEF: ECB Split Over Dec Policy Decisions, Account Shows

The European Central Bank’s Governing Council broadly agreed high levels of inflation are likely to fall back to just below the 2% price stability target over the medium term, the account of December’s monetary policy meeting shows, although there were signs of fracture as governors wrestled with exceptionally high levels uncertainty over the economy and the pandemic.

While there was general agreement that net asset purchases under PEPP could be discontinued in March 2022, it was widely agreed that substantial monetary policy support was still needed for inflation to stabilise at the medium-term inflation target, and there was wide support for the proposed APP purchases.

Forward guidance was also called into question given market participants’ seeming difficulty in reconciling the expected date for a first interest rate hike with the conditions set for such an increase. The decision to extend the horizon for PEPP reinvestments until at least the end of 2024 was seen as maintaining an important element of flexibility, but this was also questioned by some members.