Investing.com - Minutes from the European Central Bank's Jan. 24 policy meeting released Thursday revealed that policymakers still believed a rate hike was possible in the second half of 2019, even though rising downside risks for the euro zone economy were forcing them to discuss easing monetary policy again.
Comments in the last week from senior officials have indicated that the bank is already making preparations for fresh stimulus in the form of long-term loans to banks, known as TLTROs. They illustrate how quickly sentiment at the central bank has changed after a barrage of data showing a sharp slowdown in Germany and Italy, two of the bloc’s biggest economies, at the end of last year.
“While any decisions in this respect should not be taken too hastily, the technical analyses required to prepare policy options for future liquidity operations needed to proceed swiftly,” the minutes noted.
Even so, the minutes sounded too relaxed for some.
"The discussion on new monetary policy measures has not even really started yet," Nordea Markets economist Jan van Gerich said in a blog post. "The recent data releases, however, give clear grounds to being more worried."
The bank had left all its official interest rates unchanged at the meeting, and President Mario Draghi – who is due to step down later this year – subsequently repeated its previous guidance leaving open the possibility of a rate hike after the summer.
Policymakers noted that the risks surrounding the euro-area growth outlook had moved to the downside “on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”.
European banks are due to repay about €720 billion ($815.6 billion) when previous TLTROs mature in mid-2020.
Since the meeting, policymakers have taken an increasingly dovish view of developments, given additional signs of economic weakness. Business surveys released Thursday by IHS Markit suggested that the euro zone's economy will grow by only 0.1% in the first quarter.
ECB Executive Board member Benoit Coeure said last Friday that policymakers were discussing the possibility of offering new targeted long-term loans to banks, known as TLTROs, something that would help to stop market interest rates for euros rising for the next couple of years.
And in an interview published on Sunday by Spanish newspaper El País, ECB policymaker Francois Villeroy de Galhau noted that the central bank’s course of action would depend on whether the current slowdown is temporary, or appears to be a longer-term threat.
He indicated that resilient domestic demand in Germany, France and Spain was so far keeping the threat of a recession at bay although he recognized the risks of worldwide protectionism and the uncertainty surrounding the U.K.’s departure from the European Union.
The next ECB policy meeting will take place on March 7, where policymakers are expected to cut growth and inflation forecasts, in the light of recent data.
Overall, the minutes were largely in line with Draghi’s message at the Jan. 24 press conference and little movement was seen in currency and debt markets after the publication.