ECB December Monetary Meeting Minutes: Economic Uncertainty Still High

This evening, the European Central Bank held its December policy meeting.

The minutes show a unanimous consensus among the members that economic uncertainty remains high at present and that positive optimism may soon fade.

The document also showed that there are concerns about risks associated with exchange rate developments that could negatively impact the inflation outlook, and that all members agreed that adding additional policy support is necessary, while further reductions in Treasury yields will likely have side effects.

Members also agreed that under the current uncertainty of the epidemic, the Emergency Epidemic Purchase Program (PEPP) is more effective than a rate cut, and that expanding the size of the PEPP is considered appropriate by most members.

In addition, the meeting also considered that the current risk of unstable inflation expectations is very prominent.

It is worth noting that members still have reservations about the proposal to increase the temporary loan allowance to 60%.

Yesterday ECB President Lagarde made her first appearance of the New Year, firmly defending previous optimistic views on the eurozone’s economic recovery – last month, the ECB predicted that the eurozone’s economic growth would be 3.9% in 2021, assuming the gradual end of the epidemic.

Lagarde said the year is off to a more positive start than some believed. The early stages of vaccine distribution have been tough. But some uncertainties have been removed, such as Brexit, the U.S. election, and vaccine approval.

As a result, Lagarde also stressed the importance of avoiding the mistake of removing support to the economy too soon. She pledged that the ECB is determined to maintain a good financing position, that the recovery of the economy requires sustained fiscal and monetary policy support, and that the next generation of EU funds must be launched quickly.

As planned, the ECB will announce the first interest rate resolution of the New Year next Thursday (21), following the 500 billion euros of easing just added in December.