ECB policymakers cool on more stimulus even if outlook worsens
October 19 2019 10:18 PM
The headquarters of the European Central Bank in Frankfurt. ECB policymakers don’t expect any more monetary easing in coming months despite a likely downgrade in their economic forecasts in December, according to euro-area officials.

Bloomberg/ Frankfurt

European Central Bank policymakers don’t expect any more monetary easing in coming months despite a likely downgrade in their economic forecasts in December, according to euro-area officials.
The interest-rate cuts and quantitative easing pushed through by President Mario Draghi in September are enough to see the eurozone economy through its slowdown unless it’s hit by shocks such as escalating trade tensions or a no-deal Brexit, the officials said, speaking on condition of anonymity. 
The vehement opposition by some governors to those measures dampens the chance of more action any time soon, they added. An ECB spokesman declined to comment.
The mood on the Governing Council suggests policy makers want to restore harmony after Draghi’s forceful push for stimulus sparked unprecedented public dissent from key colleagues.
The extent of the dissatisfaction was on display around the International Monetary Fund meetings in Washington this week, when hawks such as Austria’s Robert Holzmann and the Netherlands Klaas Knot reiterated their concerns, and even Italy’s Ignazio Visco, a longtime supporter of stimulus, said he doesn’t want any more rate cuts.
Draghi will hold his final policy meeting on Thursday before his eight-year term ends on October 31, and his successor Christine Lagarde may find she needs all the diplomatic skills she honed as French finance minister and IMF chief.
The euro-area officials acknowledged that the ECB will probably cut its forecasts for economic growth when it updates the projections in December.
Recent data have been weak and reports in coming days will probably reinforce the message that the region’s manufacturing recession risks spreading to the services sector. Inflation is already projected to remain well below the ECB’s goal of just under 2% until at least 2021, and that outlook may not change much. The December projections will include a first estimate for 2022.
While Draghi has repeatedly urged governments to come up with fiscal stimulus, investors and economists see a need for more monetary easing, predicting another rate cut before the middle of next year. A Bloomberg survey of economists suggests QE will run until the third quarter of 2022.
Maintaining QE without running into the ECB’s self-imposed restrictions on its debt holdings, which guard against illegally financing governments, will be one of Lagarde’s top challenges. Any move to raise the limits would almost certainly provoke another split in the Governing Council.
According to the euro-area officials, the central bank can keep going at the current pace of €20bn ($22bn) a month for at least 18 months, though it would have to use the flexibility built into the rules. That would imply buying more sovereign debt from some countries than others for a period, or stepping up purchases of private-sector and agency bonds.
“The ECB is running low on sovereign bonds to buy – that undermines the credibility of its pledge to keep going until inflation picks up. The easiest way to ensure the program can run, without changing its self-imposed guidelines, is to lean more heavily on private debt”, says Bloomberg economist David Powell.
One thing Lagarde looks set to be pressured to do early in her term is commission a review of the ECB’s strategy for achieving price stability. Internal work and discussions are already ongoing on topics such as inflation targeting and symmetry around the goal but the Governing Council needs to sign off on a formal process, the people said, adding that the support appears to be there to do so.

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