Members of the European Central Bank's rate-setting Governing Council unanimously agreed on the need for additional stimulus but they differed over key parts of the policy package unveiled last month, particularly on the restart of quantitative easing, according to the account of the Sept. 11-12 policy meeting released Oct. 10.
The ECB lowered its deposit facility rate in September and announced that it will restart bond purchases at a monthly pace of €20 billion. The central bank said it would maintain quantitative easing "for as long as necessary" and would only end "shortly before" the central bank starts rate hiking once more.
Minutes of the policy meeting showed that a "clear majority" of the Governing Council members supported the stimulus measures including quantitative easing. Still, "a number of members" viewed the case for new asset purchases as "not sufficiently strong," believing that the policy tool is "less efficient" and an "instrument of last resort" that should only be deployed in the event of "more severe contingencies."
Policymakers were also cautioned during the meeting against keeping bond purchases open ended, which could increase market demand for higher monthly purchase amounts and deplete the supply of purchasable debt.
"This would exhaust the purchasable universe and call into question the program limits, which were considered important to ensure that the boundary between monetary policy and fiscal policy was not blurred," the account of the meeting said.
A discussion of the current limits on asset purchases "could wait until the issue became more pressing," the minutes added, noting that the pace of purchases at €20 billion per month was "far less" compared with that in the earlier phases of the program.
The minutes also showed that a "very large majority" of Governing Council members agreed with the reduction in the rate on the deposit facility by 10 basis points. "Few members" were also prepared to consider a rate cut of 20 basis points as part of a package that would exclude net asset purchases, while others objected to any additional rate cuts at all due to their "increasingly adverse side effects."
A majority of policymakers supported the introduction of a two-tier system for reserve remuneration to exempt part of banks' excess liquidity holdings from the negative deposit facility rate. However, "a number of reservations" were made regarding the move, as policymakers were warned that an improperly calibrated two-tier system "could give rise to side effects and put upward pressure on market rates," the minutes said.
