Reinforcing the dovish tone, the minutes for April’s ECB meeting exemplified the members’ pessimism over the economic outlook. They were becoming less confident that the baseline scenario of growth can be achieved. As such, the central bank would try to stimulate bank lending via the Targeted Longer-Term Refinancing Operations (TLTROs III), together with the exceptionally low interest rates. As in the policy statement, the minutes did not reveal any technical detail about the operations. We expect to hear the details in June or July, given the measure would take effect in September. Meanwhile, negative interest rates could affect profitability of the banking sector and there have been discussion on measures to mitigate such effect. We do not see much news on this issue. Again, we expect to know more in June. At the April meeting, ECB decided to leave the main refi rate, the marginal lending rate and the deposit rate unchanged at 0%, 0.25% and -0.40%, respectively. It would also continue to reinvest the proceeds from maturing securities purchased during the QE program which was completed in December 2019.

The members acknowledged that “some recent data had turned out even weaker than expected”, leading to “somewhat less confidence in the baseline scenario (for growth) and that the range of other possible outcomes had widened”. They also noted that inflation “remained uncomfortably” below their target level.

Policymakers were probably still working on TLTROs details at the time of the meeting. Little detail was disclosed. As suggested in the minutes, “some arguments were put forward in favor of pricing the new operations so they would primarily serve as a backstop, providing insurance in times of elevated uncertainty”, while “other arguments supported the view that the TLTRO-III operations should be seen as a potential tool for adjusting the monetary policy stance”.

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ECB acknowledged that negative interest rates could affect profitability of the banking sector. As suggested in the minutes, it considered “whether the preservation of the favorable implications of negative interest rates for the economy would require the mitigation of their possible side effects, if any, on bank intermediation”. However, the minutes went short of giving any hint on the potential measures.

The April meeting affirmed policymakers’ dovish outlook over the economic outlook. This would certainly lead to more stimulus measures. The June ECB meeting would be an important event. Besides the latest staff economic projections, ECB is also expected to announce technical details about TLTROs and potential measures to mitigate adverse impacts of negative interest rates. Intensifying US-China trade war and ongoing Brexit uncertainty could force ECB to ease further to boost growth.


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