The European Central Bank (ECB) is overhauling the way it sets monetary policy, saying it is to hold fewer meetings and publish minutes on its deliberations — a bid to be more transparent as it vows to keep supporting the eurozone economy by any means available.
After the bank decided to keep its interest rates on hold on Thursday, European Central Bank President Mario Draghi told a press briefing the bank remain committed to taking more action to help the 18-country eurozone grow faster and emerge from a period of dangerously low inflation.
To help investors understand the bank’s thinking behind such decisions, Draghi said that, starting in January next year, minutes are to be published, a move that brings the ECB in line with other major central banks. Some investors had asked for greater transparency from the ECB over the past few years, when uncertainty was high in markets amid the financial crisis.
Draghi added that from next year, monetary policy will be set every six weeks, instead of every month. That, he said, would help reduce market volatility by traders looking for action that is not always merited by economic fundamentals such as growth and inflation.
“Maybe we should move to a six-month schedule,” Draghi said.
The bank’s policy timetable will be very similar to that of the US Federal Reserve, which meets eight times a year, usually every six weeks. Draghi stressed that the ECB would not be synchronizing its meetings.
Marc Ostwald, a senior strategist at ADM Investor Services International Ltd, said that the publication of the minutes may, however, undermine Draghi’s aim to have less market volatility.
“With eight meetings a year and an additional eight meeting minutes release dates, the fact is that there will in principle be more, rather than less event risk surrounding ECB policy,” he said.
Draghi on Thursday also fleshed out details of the bank’s latest plan to flood commercial banks with up to 1 trillion euros (US$1.36 trillion), one of the measures it announced last month, along with interest rate cuts, to help the economy and nudge up inflation. One of the problems afflicting the eurozone is that banks often hold back from lending to businesses and households.
Draghi said the program of loans to banks will help drive inflation back to the target of just below 2 percent from the current 0.5 percent. Under the program, banks can bid for the loans on a quarterly basis, either alone or in a group with other banks. That money would have to be loaned on to businesses, in the hope of boosting investment.
Draghi said the recovery in the eurozone remained moderate and that inflation was subdued, but claimed long-term inflation expectations were “firmly anchored.”
“Geopolitical risks, as well as developments in emerging market economies and global financial markets, may have the potential to affect economic conditions negatively, including through effects on energy prices and global demand,” he said.
Draghi said the bank’s key interest rate will remain at the current level of 0.15 percent or lower for an “extended period of time” and that the ECB’s governing council was unanimous in its commitment to using other monetary stimulus measures should inflation stay too low for too long.
Low inflation, and in particular falling prices, can weigh on an economy as consumers delay spending in the hope of future bargains.