21st February 2020 By David Barwick - FRANKFURT (EconoStream) – The account of the European Central Bank’s January policy meeting, released by the ECB on Thursday, showed members of the Governing Council to be cautiously optimistic at the time about the continued materialization of their baseline scenario for economic growth in the Eurozone.

At the meeting, which took place January 22-23 and thus before the coronavirus outbreak captured international attention, there was no mention made of the disease and China’s role in the discussion was only in the context of the recent “phase-one” trade agreement between it and the U.S.

 

The Council confirmed “ongoing, but moderate, growth” in the region consistent with its staff projections of the previous month. Although the manufacturing sector remained weak and the risk of adverse spillovers “still needed to be monitored closely,” continued strong labor markets and wage growth were providing support, Council members determined. One or more members cautioned against too much optimism.

 

Globally, the latest data survey offered some hope “of a stabilisation and even a possible pick-up in activity,” the account said. As well, the trade situation had brightened somewhat, although downside risks including geopolitics and protectionism prevailed, Council members felt.

 

On inflation, “members were encouraged by the fact that headline and underlying inflation had recently evolved in line with the December staff projections and by the evidence of a continued gradual upward trend in some indicators of underlying inflation,” according to the account.

 

It was observed that HICP ex-food and energy had reached a four-year high without housing costs fully factored in, the report said. “At the same time, it was argued that the level of underlying inflation remained muted, even though the likelihood of a general upward trend in inflation dynamics had increased.”

 

Given the distance between the ECB’s objective and present inflation, a “highly accommodative” policy stance “for a prolonged period of time” was supported by the Council members, the account said. The current suite of measures in place was deemed “appropriate” and members agreed unanimously to leave policy unchanged, also so as to let September’s decisions unfold their full impact.

 

With respect to the communication of policy, the account said that it “needed to be emphasised that a prolonged accommodative monetary policy stance was required, that monetary policy transmission was effective and that the Governing Council was confident that the substantial monetary policy stimulus would pass through to inflation.”