ECB December meeting minutes: Communication must change if reflation continues

Author: Justin Low | Category: News

ECB publishes their account for the December MPC meeting

  • Forward guidance, language around policy stance could be revisited in early 2018
  • Saw "some comfort" in wage dynamics but inflation is a concern
  • Communication would need to evolve gradually
  • Relative importance of guidance on rates will increase as inflation rises
  • Warranted to transition gradually to a broader forward guidance comprising various dimensions of policy stance
  • Could consider gradual shift in guidance from early 2018
  • Further easing of financial conditions not regarded as warranted
  • Increased confidence that inflation pressures would take hold
EUR/USD liking the comments that a possible shift in guidance may come in 2018, now up to 1.1980 after touching highs of 1.1985.

The main item there is the talk on "gradual shift" starting from early 2018. That's much earlier than what the ECB has been saying previously. Remember, QE is expected to run through to September 2018 - and possibly beyond, even according to Draghi - so the early shift in communication is something relatively new.

Though the "gradual shift" talk has been communicated by other ECB members, this is one of the first official messages that the ECB has included such a rhetoric in and it's possibly one that will continue into 2018 - so markets will have to adjust to that. The real issue again, will be inflation. Unless wages pick up, there remains doubt in how soon the ECB can shift towards policy normalisation - even if it's just tweaking its communication.