ECB thinking on policy is still conservative – ABN AMRO

According to Nick Kounis, head of financial markets research at ABN AMRO, ECB account of the March Governing Council meeting suggested that the central bank still maintains a cautious stance in reacting to the slowdown.

Key Quotes

“This reflects the Governing Council’s ‘confidence … that the conditions for a rebound in activity and inflation remained in place to support a sustained convergence of inflation rates towards levels below, but close to, 2% over the medium term’.”

“Although there was some officials calling for a longer extension of the forward guidance on interest rates (to March 2020), the majority opted for a shorter extension (to the end of this year) as ‘a data-driven gradualist approach was seen as most appropriate’.”

“In addition, the maturity of the TLTRO-III also suggested a conservative reaction. The Governing Council noted that ‘a shorter horizon would provide a stronger signal to banks that they needed to be prepared to secure funding on private markets and avoid becoming overly reliant on central bank funding’.”

“The ECB was trying to strike a balance between alleviating a re-funding cliff and pushing banks gradually away from reliance on ECB liquidity.”