Few surprises in the minutes of the European Central Bank's April Governing Council meeting - ING

Peter Vanden Houte, chief eurozone economist at ING, notes that there were few surprises in the minutes of the European Central Bank's April Governing Council meeting with the central bank pretty much remaining in wait-and-see mode.

1. The members of the Council acknowledged that there is a more protracted soft patch, but they believe a more solid growth rate in the second half of the year is still to be expected. That said, the risks surrounding the growth outlook remained tilted to the downside.
2. Underlying inflation remains muted and inflation expectations have declined. However, the Governing Council still thinks that stronger wage growth should lead to higher inflation and that there is still no sign of inflation expectations becoming unanchored.
3. Cost efficiency, excess capacity and the need for consolidation were seen as the reasons for low bank profitability. While further analysis was deemed warranted about the impact of persistently low and negative interest rates on the banking sector, policymakers still believe that the negative deposit rate has contributed to increased lending volumes.
4. Members agreed that the Governing Council should also consider in its regular assessment whether the preservation of the favourable implications of negative interest rates for the economy called for the mitigation of their possible side effects, if any, on bank intermediation. So in essence, the tiering of the deposit rate could be considered if and when the bank believes that the side-effects of negative rates have become too big.
5. The pricing of the new TLTRO-III operations should be data-dependent and take into account a thorough assessment of the bank-based transmission channel of monetary policy, as well as further developments in the economic outlook. Some arguments were put forward in favour of pricing the new operations so that they would primarily serve as a backstop, providing insurance in times of elevated uncertainty. Other arguments supported the view that the TLTRO-III operations should also be seen as a potential tool for adjusting the monetary policy stance.