Unnerved by markets, European Central Bank rate setters wary of July move
Spooked by a market backlash, some European Central Bank policymakers are having doubts about signalling in July that they are moving closer to dialling back their easy money policy.
Conversations with six central bank officials from across the euro zone showed they had been unnerved by a rise in the euro and in government bond yields after ECB President Mario Draghi opened the door last week to policy changes.
Wary of weakening the economic recovery, some rate setters have become nervous about dropping their long-standing pledge: they will expand or extend the ECB’s 2.3 trillion- euro bond- buying programme if necessary to bring inflation back to its target of just under 2 per cent.
Such a change is almost certain to be discussed when the bank meets on July 20.
But removing the pledge would probably be taken by the market as a sign the ECB was preparing to wind down the scheme, which has made borrowing cheap and boosted euro zone exports by holding down the value of the euro.
Despite declines on Monday, the euro and German bond yields, the debt benchmark for the region, were still far higher than they had been before Draghi’s speech.
That is an unwelcome development for an ECB seeking to maintain ultra-easy borrowing conditions.
“We have to see how the market develops between now and the meeting,” one of the sources said. “I’d say we should err on the side of caution.”
A spokesman for the ECB declined to comment. With inflation above 1 per cent and the euro zone’s economy on its best run for years, officials generally agreed the way was clear for a gradual normalisation of ECB policy. They disagreed on the timing, though.