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Nick Kounis, head of financial markets research at ABN AMRO, explains that the ECB’s account of the April Governing Council meeting suggested that the ECB is not yet ready to move towards additional monetary stimulus, but if anything that is where its bias currently lies.

Key Quotes

“The account notes that although ‘contingencies for the Governing Council to act again had not materialised, the point was made that inflation remained uncomfortably below the Governing Council’s inflation aim and market-based inflation expectations had receded, while the projected inflation convergence had been repeatedly delayed’.   Indeed, ‘some concern was expressed that market-based inflation expectations had shifted downwards in parallel with actual inflation and across all maturities’. Against this background ‘the Governing Council reiterated its determination to stand ready to adjust all of its monetary policy tools, as appropriate’.”

“The Council provided a caveat to its concerns about inflation expectations, saying that ‘the deterioration was seen to mainly reflect a response to the weaker economic outlook rather than an unanchoring of inflation expectations’. This is line with the point made by several members of the Executive Board (including Messers Draghi and Coeure) that the decline in inflation expectations (as measured by the 5y5y) mainly reflected a fall in inflation premia rather than expectations.”

“The combination of weak underlying inflationary pressures, subdued economic growth and the drop in inflation expectations points to further dovish shifts from the ECB.”