European Central Bank policymakers are likely to debate new multi-year loans to banks, a potent stimulus tool, in the months ahead as they navigate a “fragile and fluid” global context, minutes of their December meeting showed on Thursday.
A five-year economic expansion in the euro zone is rapidly losing pace as weak demand from China takes a toll on the bloc’s top exporter, Germany, while France and Italy pay the price of home-brewed political woes.
This is complicating the ECB’s plans to dial back its aggressive stimulus policy, which helped bring the bloc back from the brink of deflation in 2016 but is out of sync with the current moderate but steady price growth.
The central bank wrapped up its 2.6 trillion euro ($3.00 trillion) bond purchases at the Dec. 12-13 meeting but ECB President Mario Draghi couched his policy message in warnings about growing risks, such as trade tensions between Washington and Beijing, and weaker economic data.
Minutes of the discussion suggested some policymakers would have liked Draghi to be even more cautious and at least some called for a discussion on a new round of cheap credit to banks — a key source of funding for lenders in Italy, Portugal and Spain.
This confirmed Reuters reports and was likely to cement market expectations for a new Targeted Long-Term Financing Operation in some form in the coming months.
“Looking ahead, the suggestion was made to revisit the contribution of targeted longer-term refinancing operations to the monetary policy stance,” the ECB said in its account of the December meeting.