Investing.com -- Some of the European Central Bank's top policy-makers wanted the bank to go further than it did last month when it pushed back rate hike expectations and announced a new round of low-cost loans to prop up the financial sector.
However, they were countered by others worried that keeping rates too low for too long could undermine a banking sector that has deep-seated profitability issues, according to minutes from the last policy meeting released Thursday.
"A number of members voiced an initial preference for extending the forward guidance through the end of the first quarter of 2020," the minutes said. In the end, the Governing Council only promised not to hike interest rates until the end of 2019.
"Concerns were voiced that over time, the effects of persistently low rates could depress banks' interest margins and profitability, with negative effects on banks' intermediation and financial stability in the longer run," the minutes said.
Financial markets sold off in the aftermath of the meeting, seeing the measures as not enough to make a meaningful difference to an economy that has slowed sharply in the last six months.
The bank said it would launch a new round of quarterly targeted longer-term refinancing operation, known as TLTROs, starting in September 2019 and ending in March 2021, each with a maturity of two years. The loans will help banks meet a key new standard on liquidity and avert the risk of them hoarding funds and starving the economy of credit.
Since the meeting, the ECB has dropped a number of hints that it could lay the groundwork for further interest rate cuts. By ‘tiering’ the rate paid by banks to park funds in the ECB’s deposit facility, it could soften the penalty effect of holding excess reserves.