ECB accounts show worries over strong euro

FRANKFURT (Reuters) – Euro zone inflation is still distant from the European Central Bank target and a strong euro posed an added danger, ECB policymakers concluded last month, the accounts of their Jan 21 meeting showed on Thursday.

The ECB left policy unchanged last month but warned that a recent surge in COVID-19 infections posed a risk to the euro zone’s recovery and raised the chance of a delayed recovery.

Data since the meeting have all pointed to an even weaker start of the year than earlier projected as vaccinations were proceeding slowly and countries were extending lockdown measures, keeping much of the services sector shuttered.

“Concerns were voiced, however, over developments in the exchange rate that might have negative implications for euro area financial conditions and, ultimately, consequences for the inflation outlook,” the ECB said.

“Ample monetary stimulus remained essential,” the ECB added.

Policymakers were more sanguine about a rise in bond yields, saying they remained at historical lows once adjusting for inflation.

“It was maintained that not every increase in nominal yields should be interpreted as an unwarranted tightening of financing conditions and trigger a corresponding policy response,” the ECB said.

Having extended stimulus well into next year in December, the ECB is under no pressure to act anytime soon, as it has already allotted enough firepower to keep borrowing costs down, in line with its commitment to keep borrowing costs stable.

The election of former ECB chief Mario Draghi as Italy’s prime minister also buoyed markets, welcome relief for the ECB as Italy’s ballooning debt is one of the top headaches for policymakers.