EUR 2020-11-26 12:30

ECB Monetary Policy Meeting Accounts of 28-29 October 2020

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 28-29 October 2020

Key Points:

1. Financial markets had been driven by two opposing forces. On one side, reduced risks of a contested presidential election in the United States and expectations of a large fiscal stimulus programme under a potential Biden presidency had boosted risk sentiment and revived the reflation trade.

2. Inflation expectations had trended lower since the Governing Council’s previous monetary policy meeting, thereby also putting downward pressure on yields

3. The global economy had come back rapidly early in the third quarter, after the end of the lockdowns.

4. output had rebounded strongly in the third quarter of 2020. At the same time, clear risks to GDP growth had emerged for the fourth quarter of 2020, linked primarily to the latest news about the plans for more severe lockdowns from November onwards.

5. Headline inflation had declined from -0.2% in August to -0.3% in September, with inflation excluding energy and food decreasing from 0.4% to an all-time low of 0.2%.

6. members underlined that there had been both positive and negative news since the last monetary policy meeting. Euro area real GDP had contracted by 11.8%, quarter on quarter, in the second quarter of 2020. However, following the trough in April 2020, the euro area economy had rebounded strongly in the third quarter, likely more than had been expected in the September ECB staff projections, making up a large part of the contraction in the first half of the year.

7. It was observed that headline inflation was now expected to be in negative territory for longer than had been foreseen in the September ECB staff projections. Moreover, it was highlighted that HICP inflation excluding energy and food had fallen to a new low of 0.2% in September, owing to lower non-energy industrial goods and services inflation.

8. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility would remain unchanged at 0.00%, 0.25% and -0.50% respectively. The Governing Council expected the key ECB interest rates to remain at their present or lower levels until it had seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence had been consistently reflected in underlying inflation dynamics.

9.Net purchases under the asset purchase programme (APP) would continue at a monthly pace of €20 billion, together with the purchases under the additional €120 billion temporary envelope until the end of the year. The Governing Council continued to expect monthly net asset purchases under the APP to run for as long as necessary to reinforce the accommodative impact of its policy rates, and to end shortly before it started raising the key ECB interest rates.