(Bloomberg) — European Central Bank officials see strong reasons to hold their nerve instead of rushing into expanding emergency stimulus despite a sharp slowdown in the economy and rise in coronavirus cases.
While the surge in infections means new social restrictions and a hit to activity, there’s little appetite among most policy makers to expand bond buying again at this month’s meeting, people involved in deliberations said. They asked not to be named because the discussions are private.
That reinforces the idea that December is the most likely month for a decision, partly because the Governing Council will receive new growth and inflation forecasts and have more time to evaluate the economic damage. The U.S. election will have taken place, and uncertainty over Europe’s fiscal stimulus package and Brexit may also have dissipated.
Securing unanimous support for a stimulus boost would also be easier in December, according to one euro-area official. It’s an important consideration for President Christine Lagarde who has stressed the need to build consensus around policy decisions, after inheriting a divided council from her predecessor, Mario Draghi.
An ECB spokesman declined to comment.
Some officials, including Dutch governor Klaas Knot, have argued they want more information before making up their mind. That suggests pushing through an expansion in October would risk a split in the Governing Council that could dull the market impact, effectively undermining the policy action.
Whatever the outcome, the decision is going to be a major test of Lagarde’s ability to coalesce divergent views after a show of unity among officials during the height of the pandemic.
“Under Draghi, they might have pushed for the move already, but under Lagarde the ECB is more consensual,” said Nick Kounis, head of macroeconomic research at ABN Amro NV in Amsterdam. “You need to wait for more information to calibrate your response better, and if you have a split it takes time to get a consensus, so I don’t think Lagarde is the one to push for action just yet.”
Economists expect the ECB to top up its 1.35 trillion-euro ($1.6 trillion) emergency purchase program before the end of year. It’s currently due to run until mid-2021, and with less than half the money spent, there’s also no immediate reason to rush — as Vice President Luis de Guindos argued this week.
“We will have new projections in December and we will reassess how convenient and how adequate the package is according to the new projections,” he said.
Yet, chief economist Philip Lane put the ECB’s October session in two weeks into play when he argued the Governing Council will decide “meeting by meeting” if action is needed.
His colleague Fabio Panetta has expressed concern about the price outlook and argued the ECB should err on the side of delivering too much stimulus. The euro-area inflation rate is below zero and likely to remain there for the rest of the year.
Policy makers from the region’s two largest economies have urged patience for now.
Bundesbank President Jens Weidmann has cautioned against pre-empting decisions that haven’t been made because of the expectations such chatter creates. For French Governor Francois Villeroy de Galhau, the “present very accommodative monetary stance is appropriate.”
“But steady hands are not tied hands: we have free hands for the future, and will be ready to act further if needed,” Villeroy said this week.
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