ECB Meeting Account Shows Some Council Members Focussed on Upside Risks
14 May 2021
By David Barwick – FRANKFURT (Econostream) – The account of the European Central Bank’s policy meeting of 21-22 April, released by the ECB on Friday, indicated that despite President Christine Lagarde’s reluctance to mention upside risks at the subsequent press conference, some participants in the Governing Council meeting highlighted these.
According to the account, ‘it was generally felt that risks to activity had become more balanced over the medium-term horizon, with a view also being expressed that they were now marginally tilted to the upside.’
‘However, there was broad agreement to retain the risk assessment as expressed at the March monetary policy meeting, which could be revisited more fully in the context of the June staff macroeconomic projection exercise’, the account continued.
The meeting addressed the sources of upside risk, which included global demand, fiscal stimuli, faster vaccination and a surge in household spending, arrayed against pandemic-related risks on the downside.
While Council members ‘generally’ agreed it was necessary to look through volatile inflation developments over the next 12 months, ‘[a]t the same time it was noted that, since the cut-off date for the March 2021 ECB staff projections, there had been a further upward revision to the inflation outlook for 2021 and 2022’, the account stated.
Besides the upside price pressure from energy goods, supply chain disruptions could also be a source of additional short-term inflation, one or more Council members noted.
Still, underlying inflationary pressures were subdued and wage developments were not seen contributing, the account said.
‘Against this background, a view was expressed that while the policy-relevant medium-term inflation outlook was broadly unchanged from the March meeting, risks to this outlook could be assessed as tilted to the upside’, according to the account.
With respect to market-based inflation expectations, the increase seen since the March Governing Council meeting was attributed primarily but not wholly to increased risk premia. Nonetheless, the risk of a dis-anchoring of expectations to the upside was not seen.
‘However, the implications of higher headline inflation during 2021 for inflation expectations and possible second-round effects would need to be monitored’, the account said.
Financial conditions were viewed as ‘broadly unchanged’. ‘In particular, risk-free rates and sovereign bond yields had moved sideways and appeared to have decoupled from the repricing in US interest rates’, the meeting account said. ‘At the same time, the rise recorded earlier in the year in these key indicators in the upstream segment of the transmission chain still posed a risk to the wider set of financing conditions, which in turn warranted close monitoring.’
Taking everything into account, Council members agreed to confirm the highly accommodative stance of the ECB and that the ECB’s commitment to favourable financial conditions ‘remained essential to reduce uncertainty and bolster confidence’, the account said. ‘It was also widely agreed that it should be highlighted that the future pace of purchases under the PEPP was data-dependent and would continue to be based on the joint assessment of financing conditions and the inflation outlook.’