European Central Bank policymakers broadly agreed to look through the energy-driven recent upturns in headline inflation and sought patience as they judged that the euro area economy required a substantial monetary stimulus to bring price growth to target, the minutes of the bank's policy session held on January 18-19 showed Thursday.
The Governing Council must carefully monitor potential indirect and second-round effects of the recent inflation spike, the minutes, which the ECB calls "account" of the meeting said.
In January, headline inflation accelerated to a four-year high of 1.8 percent from 1.1 percent, led by a jump in energy prices. Core inflation, which excludes energy, food, alcohol and tobacco prices, was 0.9 percent in January, unchanged from December.
The ECB aims to keep inflation "below, but close to 2 percent".
Policymakers also agreed that it was imperative to maintain a very substantial degree of monetary accommodation for inflation pressures to build up and durably support headline inflation.
Otherwise, recent encouraging developments in inflation expectations and the prospects for a sustained adjustment in inflation towards the near 2 percent target could be put at risk, they said.
"Therefore, the Governing Council was seen as well advised to remain patient and maintain a "steady hand" to provide stability and predictability in an environment that was still characterized by a high level of uncertainty," the central bank said.
In the January policy session, the Governing Council left all its three interest rates unchanged and retained its asset purchases of EUR 80 billion a month till March and to continue them at a reduced size of EUR 60 billion a month till December.
Last week, ECB Executive Member Yves Mersch suggested that there was a need to adjust the bank's guidance on lowering rates further so as to protect its credibility.
However, the minutes suggested that policymakers broadly agreed on the need for substantial monetary stimulus in the euro area.
"Members widely agreed to maintain the communication adopted at the December monetary policy meeting and, hence, to confirm the intended pace and horizon of APP purchases and the forward guidance on the key policy rates," the report said.
"The Governing Council should also continue to signal its willingness and readiness to act, if warranted, to achieve its price stability objective," the bank added.
Clouding the outlook for the Eurozone economy are elections in key countries such as Germany and France and the start of the UK exit talks with the EU. Risks from abroad mainly include those posed by US President Donald Trump's protectionist trade policies.
by RTT Staff Writer
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