The ECB released an account of its December 15-16 monetary policy meeting.
It noted that:
- It was cautioned that while economic performance had been better than
expected, economy was not yet “out of the woods”;
- Reference was made to increased uncertainty implied by emergence of the
Omicron variant. It was argued that the impact on inflation might be upward
rather than downward in a context of more persistent supply-side constraints;
- Members were of the view that there was elevated uncertainty as to where
inflation would settle in medium term after the current hump;
- Members concurred that recent and projected near-term increase in
inflation was driven largely by temporary factors that were expected to ease in
course of 2022;
- Inflation was still projected to settle below Governing Council’s 2%
target in baseline scenario. It was stressed that projected convergence of
inflation expectations towards 2% was to be welcomed although outlook was
surrounded by exceptionally high uncertainty;
- At the same time, it was cautioned that “higher for longer” inflation
scenario could not be ruled out;
- For 2023 and 2024, inflation in the baseline projection was already
relatively close to 2% and, considering upside risk to the projection, could
easily turn out above 2%;
- Governing Council should communicate clearly that it was ready to act if
price pressures proved to be more persistent;
- Concerns were also expressed about any premature scaling back of
monetary stimulus and asset purchases;
- Members broadly agreed that progress on economic recovery and towards 2%
medium-term inflation target permitted a gradual normalisation of the policy
stance;
- There was general agreement that downward impact of the pandemic on projected
path of inflation had dissipated or been offset, and that net purchases under
the PEPP could accordingly be scaled down and discontinued at the end of March,
in line with previous communication;
- Members widely agreed that substantial monetary policy support was still
needed for inflation to stabilise at target;
- It was argued that Governing Council should look through the current
supply disruptions and keep steady hand, while carefully monitoring any
developments pointing to unanchoring of inflation expectations;
- It was cautioned that discontinuation of net purchases under the PEPP at
the end of Q1 2022 and expiry of favourable interest rate conditions in TLTRO
III operations would imply monetary tightening in 2022;
- A divergence from monetary policy stance in other jurisdictions, which
could be perceived as less accommodative than in euro area, was seen as
warranted by different economic conditions;
- The point was made that declaring an end to emergency might be
considered premature given current deterioration in the pandemic situation;
- Governing Council should retain ability to calibrate and recalibrate the
monetary policy stance in data-driven manner in either direction