(Bloomberg) — European Central Bank policy makers were united in June on the plan to stand ready to provide more stimulus to the euro-area economy, a move that could be followed by interest-rate cuts as soon as this month.
A number of reports on the economy have deteriorated since that meeting, which may increase the chance of stimulus sooner rather than later. ECB President Mario Draghi has also toughened his language, saying that if the outlook didn’t improve, that would be enough to warrant action.
“There was broad agreement that, in the light of the heightened uncertainty, which was likely to extend further into the future, the Governing Council needed to be ready and prepared to ease the monetary policy stance further,” according to an account of the Governing Council’s June 5-6 meeting.
The ECB isn’t alone in signaling looser policy to come. Federal Reserve Chairman Jerome Powell on Wednesday flagged risks to growth and traders expect at least a quarter-point U.S. cut later this month. The People’s Bank of China is using a varied tool box to push credit into the economy.
At the June meeting, ECB members also reached a general consensus on policy proposals put forth by Chief Economist Philip Lane, though “some nuances were expressed about individual elements of the policy package,” including forward guidance on interest rates and pricing of long-term loans for banks. Some wanted the pricing to be more attractive.
Draghi has said the ECB is willing to consider further cuts to rates or potentially renewing asset purchases if needed. Starting in September there are also plans to provide lenders with an extra infusion of cash in the form of long-term loans.
Some policy makers have set a slightly higher bar for action than Draghi, suggesting that new downside risks would need to materialize. That indicates they don’t want to rush any major decision.
ECB officials said inflation was “seen to remain some distance away from the Governing Council’s inflation aim.” Market-based inflation expectations have fallen steeply this year.
The Governing Council will next meet to set policy on July 24-25 and update their economic projections. Draghi will likely leave office this October as the only ECB president never to have raised interest rates. IMF chief Christine Lagarde is set to succeed him.
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