ECB Monetary Policy Meeting Accounts: Governing Council is ready to adjust full range of its instruments, including TLTROs, policy interest rates and forward guidance

The ECB released account of its June 3-4 monetary policy meeting. It noted that:

• ECB’s monetary policy measures, together with the Franco-German recovery fund proposal, which was subsequently broadly taken up in package proposed by European Commission, had reduced downside tail risks for euro area;
• Broad-based decline in risk premia had offset the tightening impact of deterioration in macroeconomic fundamentals;
• The latest easing of financial conditions in euro area in part hinged on the contribution of fiscal and monetary policy to mitigating fragmentation risks across markets and jurisdictions;
• Survey data and real-time indicators for economic activity had shown some positive signs as containment measures were gradually eased. Nonetheless, these readings indicated only minor improvement compared with speed at which indicators had plummeted in preceding two months;
• PEPP [pandemic emergency purchase programme] was a measure which was proportionate to counter the serious risks to price stability, the monetary policy transmission mechanism and the economic outlook in the euro area, which are posed by the outbreak and escalating diffusion of COVID-19;
• It was argued that the proportionality assessment of any monetary policy measure had to consider, among other things, the degree to which the measure contributed to achieving the monetary policy objective;
• The PEPP and the APP were proportionate measures under the current conditions for pursuing the price stability objective;
• It was highlighted that asset purchases were an essential tool with which monetary policy could affect macroeconomic developments;
• There was now ample evidence that asset purchase programmes in general and PSPP in particular had proven effective in achieving their intended effects on euro area economy and thereby in maintaining price stability;
• Although the quantitative estimates varied to some extent and were subject to usual model uncertainty, overall evidence underpinned view that PSPP had had positive impact on macroeconomic outcomes;
• There was broad agreement among members that while different weights might be attached to benefits and side effects of asset purchases, negative side effects had so far been clearly outweighed by positive effects of asset purchases on the economy in the pursuit of price stability;
• It could not be ruled out that unintended effects could increase over time and eventually outweigh the overall positive effects;
• There was broad agreement among members to reiterate that Governing Council would do everything necessary within its mandate and that it continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards the Governing Council’s aim in a sustained manner;
• It needed to be highlighted that monetary and fiscal policies were increasingly complementing each other in current situation;
• Governing Council continued to stand ready to adjust all of its instruments, as appropriate, to ensure that inflation moved towards its aim in sustained manner, in line with its commitment to symmetry