The monetary policy meeting accounts of March ECB meeting revealed debates regarding the extent of the extension in the calendar based leg of the forward guidance. Back then, ECB said interest rates will be kept at current level at least through the “end of 2019”, changed from “summer of 2019”.
A numbers of members voiced an initial preference for extending the forward guidance through the “end of the first quarter of 2020”. That would be “more in line with the markets’ pricing of a first interest rate increase”. But others argued that “until the end of 2019” was “more consistent with the baseline scenario underlying the projections that foresaw a rebound of the economy in the second half of 2019”. Also, “in view of the high prevailing uncertainty, a data-driven gradualist approach was seen as most appropriate”
On the economy, the baseline scenario was a more protracted “soft patch” followed by a return to more solid growth. However, “uncertainty remained elevated” and it was “unclear how persistent the current soft patch would turn out to be.” Also “downside risks to the growth outlook continued to prevail despite” despite downward revision in growth forecasts in March.
And, it was highlighted that “growth projections had been revised down in a number of consecutive projection exercises and that growth might not be mean-reverting, as typically assumed in projections.” Uncertainty might also turn out to be “more persistent than expected”. Risks surround Eurozone growth outlook were “on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.”
Though, it’s also emphasized that “while the growth momentum was weaker, it remained positive”. And, neither ” the euro area, nor the global economy, was currently in recession and the probability of a recession remained relatively low.”
