FRANKFURT (Reuters) - European Central Bank policymakers debated last month the extent of their flexibility in conducting emergency bond purchases, with some cautioning against a further increase in buying, the official account of their July meeting showed on Thursday.
The ECB left policy unchanged last month and provided a slightly more optimistic view on growth but said it is still likely to use up all of its already-approved stimulus firepower to tackle the biggest economic collapse in living memory.
The account of the meeting, however, suggests that some policymakers are not keen for another increase in the ECB’s 1.35 trillion euro (1.2 trillion pounds) Pandemic Emergency Purchase Programme (PEPP) and even see room for the bank to hold back some of its firepower.
“The argument was also made that the flexibility of the PEPP suggested that the net purchase envelope should be considered a ceiling rather than a target,” said the account of the July 16 policy meeting, published by the ECB on Thursday.
“The point was made that incoming data had surprised on the upside and some of the downside risks surrounding the outlook ... had receded, increasing the possibility that the envelope might not have to be deployed fully.”
However, the formulation used in the account suggests that was a minority view, with others in the Governing Council backing a more liberal interpretation of flexibility given unprecedented uncertainty.
Indeed, most agreed that market optimism ahead of the meeting had not been fully supported by economic data, given subdued inflation and the greater risk of a persistent rise in unemployment.
“Under the baseline scenario ... the current presumption was that the PEPP envelope would have to be used in full,” the accounts showed.
With the euro zone economy expected to shrink by around a tenth this year because of the coronavirus pandemic, the ECB is buying record amounts of debt to help governments cope with extra spending. It is also paying banks to lend out its cash in an effort to salvage viable companies.
Economic data over the summer suggests that a recovery is well underway and may even be quicker than some had hoped, but rising infection numbers are raising fears that further restrictive measures may be needed to contain the pandemic.
Some government subsidy schemes, aimed at supporting jobs, are also due to run out over the next few months, suggesting that unemployment is now artificially low and will tick higher, weighing on the recovery.
The ECB will next meet on Sept. 10.
Reporting by Balazs Koranyi; Editing by Catherine Evans
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