FRANKFURT: European Central Bank policymakers see October as the most likely date to decide whether to claw back stimulus and consider December, an option flagged by staff, as too late, four sources with direct knowledge of the discussion said.
With the outlook for euro zone inflation still cloudy, policymakers feel too little data will have become available by their September 7 meeting.
They are also nervous about making changes just two weeks before elections in Germany, the biggest critic of the ECB’s 2.3 trillion euro ($2.7 trillion) money printing, the sources said.
Having been burned by a mini tantrum in financial markets last month when he raised the prospect of tightening, ECB chief Mario Draghi was keen to give as few hints as possible on Thursday about the ECB’s next move, emphasising instead the need for patience and persistence to lift inflation.
“All the signs are pointing to October,” one of the sources said. “There will be little to decide on in September... and December is just too far out.”
The ECB declined to comment. On Thursday, Draghi said that a decision would come in the autumn and that policymakers deliberately kept the date open.
One of the sources pointed to second quarter wage data, due in the weeks after the September 7 meeting, as a potentially vital piece of information.
This makes October 26 a more viable date. “It wouldn’t be smart to expect too much in September,” another source added.
Wages have been particularly troubling for the ECB. While growth is beating expectations and unemployment is coming down relatively quickly, wage growth remains muted, keeping a lid on inflation.
This apparent disconnect is likely due to more part-time and temporary work since the global financial crisis and ECB policymakers are still unsure at what point would wage growth kick in.
A third source noted that discussions in the autumn would also involve a review of the ECB’s guidance, its stance on the evolution of future policy steps.
This guidance puts interest rates at their current level until “well past” the end of bond purchases — a frame that was kept deliberately vague.
While this sequence is unlikely to change, the source said that the ECB could reassess what “well past” means and either tweak the wording or refine commentary to suggest this means months rather than years.
One of the sources said the Governing Council discussed Draghi’s speech in Sintra, Portugal, where he opened the door to policy tweaks, and there was agreement to not walk back on that message.
Investors before Thursday’s meeting expected the ECB to decide in September, with most predicting the start of a gradual wind down of the programme.
Indeed, Draghi has already noted that improving growth would by itself support lending, meaning the ECB could curb its own stimulus and maintain easy financing conditions.
— Reuters
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