Mario Draghi signed off his final monetary policy meeting at the European Central Bank last month with a call for unity on its main aim of boosting inflation, even as some policymakers pleaded for a “wait and see” approach.
While there was “broad agreement” at October’s governing council meeting that monetary policy needed to be “highly accommodative for an extended period of time”, some members raised concerns about the side effects of ECB policies, the meeting’s minutes showed.
“At the same time, a plea was made for patience to allow the measures taken in September to work through the economy, supporting a ‘wait and see’ posture at the current juncture,” the ECB said in its account of the meeting on Thursday.
The ECB endured a bruising backlash that overshadowed Mr Draghi’s final weeks in charge after it decided in September to cut interest rates further into negative territory and to restart its bond-buying programme in response to slowing growth and inflation. The heads of the German, Dutch, French and Austrian central banks all publicly criticised the move.
At its subsequent monetary policy meeting last month, “a strong call was made for unity of the governing council”, the minutes said.
“While it was underlined that open and frank discussions on the governing council were absolutely necessary and legitimate, it was regarded as important to form a consensus and to unite behind the governing council’s commitment to pursuing its inflation aim,” the ECB noted.
At its October meeting, when the council decided to leave monetary policy unchanged, it stressed that it was ready to take more easing measures if required to achieve its main objective of inflation below but close to 2 per cent.
“Strong commitment by the governing council to providing the necessary policy stimulus was seen as important to ensure the sustained convergence of inflation to the governing council’s aim,” it said.
“It was, however, cautioned that due account also had to be taken of the assessment of the possible side effects of monetary policy measures,” it said, adding: “The financial stability implications needed to be monitored closely as declining bank lending rates could squeeze banks’ margins beyond adequate risk coverage.”
Overall, there was general agreement on the council that risks in the eurozone were “still tilted to the downside, on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets”.
The members noted that “transmission of the individual measures would take time to work its way through to growth and inflation dynamics” but said the latest data “supported the projection of an upward movement in underlying inflation dynamics”.
Christine Lagarde, who replaced Mr Draghi on November 1, was present at the October meeting.
Earlier this month after her first meeting of the ECB governing council — which includes the 19 national central banking heads — Ms Lagarde invited them to a more informal discussion in an attempt to rebuild unity over dinner at the plush Schlosshotel Kronberg in the hills north of Frankfurt.
She is due to give her first major policy speech on Friday morning, when she will address a banking conference in Frankfurt.
Since taking charge of the ECB, Ms Lagarde has only given one public speech in honour of former German finance minister Wolfgang Schäuble — but at that event in Berlin she made a point of not discussing monetary policy.