ECB Monetary Policy Meeting Accounts: Concern was expressed that any change in net purchases not based on improvement in inflation outlook would lead to unwarranted tightening of financial conditions

The ECB released account of its June 9-10 monetary policy meeting. It noted that:

• Members generally agreed that, despite increase in nominal risk-free rates, euro area financing conditions had remained accommodative and continued to support recovery;
• Concern was voiced that sustained rise in market rates could translate into tightening of broader financing conditions that were relevant for wider economy;
• It was reiterated that preserving favourable financing conditions over pandemic period remained essential to reduce uncertainty and bolster confidence;
• Members expressed broad agreement with Lane’s proposal to reconfirm very accommodative monetary policy stance and to leave ECB’s monetary policy configuration unchanged, including proposal to continue net purchases under PEPP over the next quarter at significantly higher pace than during the first months of the year;
• While it seemed appropriate that improved outlook should be reflected in Governing Council’s policy stance, financing conditions were assessed as too fragile to allow meaningful reduction in pace of purchases without risking disorderly rise in yields;
• It was stressed that recovery was at early stage and lacked robustness, as it depended heavily on policy support;
• Undue tightening of financing conditions at current juncture could jeopardise ongoing economic recovery and outlook for inflation; noticeable slowing of pace of purchases for next quarter was therefore seen as inappropriate at current juncture;
• Concern was expressed that any change in net purchases not based on clear improvement in medium-term inflation outlook would lead to unwarranted tightening of financing and financial conditions and cast doubt on Governing Council’s resolve to bring inflation back to its aim;
• It was also argued that, to provide same degree of accommodation, asset purchases should be scaled back somewhat. It was stressed that improved outlook should be reflected in pace of purchases