ECB policymakers split over wording of stimulus end, rate hike – sources
European Central Bank policymakers meeting differed on whether to keep the door more open to a new extension of the ECB’s stimulus scheme and on the likely timing of its first rate hike since 2011, three sources said.
The ECB eventually said it “anticipates” that its 2.6 trillion euro (2.3 trillion pounds) bond-buying programme will end in December and that rates will remain at their current record-low levels “through the summer” of next year.
ECB President Mario Draghi said the decision, the bank’s biggest step yet towards dismantling crisis-era stimulus a decade after the start of the euro zone’s economic downturn, was unanimous, an indication that the dissenters eventually accepted the proposed wording.
But some rate-setters argued for more tentative language regarding a possible extension of the ECB’s debt purchases, for which the bar is now set fairly high, meaning significant negative events would be needed, the sources said.
Others meanwhile wanted to signal that interest rates could rise as soon as mid-2019, rather than the accepted formulation, which implies a move in the autumn, the sources added.
“Some members would have liked to see something like ‘middle of the year’,” one of the sources said. “With the chosen formulation a lot is left open.”
The ECB declined to comment.
The final wording was the outcome of a lengthy discussion coloured by fears of a repeat of the ECB’s policy error of 2011, when it raised rates twice just before a downturn and was forced to reverse course, the sources said.
That was also the reason no one objected to the final wording, the sources added.
“Some people alluded to the 2011 rate hike, expressing worries about moving too quick,” one of the sources said.
The euro and bond yields tumbled after the ECB decision, which was generally taken to be more accommodative than investors had expected.
Source: Reuters (Reporting By Frank Siebelt, Balazs Koranyi and Francesco Canepa; Editing by Catherine Evans)