Critical voices within ECB council over policy action, minutes show

Hesse: Critical voices were raised within the European Central Bank`s governing council over some of the new stimulus measures rolled out at its last meeting, the minutes of that March meeting showed on Thursday. 

"While, overall, members widely agreed on the need for comprehensive policy action, different views were expressed with regard to the individual components of the proposed package," the minutes stated.

At that meeting on March 9 and 10, the governing council fired off a new volley of shots in its ongoing battle to avert deflation in the euro area and jumpstart economic recovery in the region. 

The ECB slashed already record-low interest rates, said it would pump massive new sums into the banking system and, for the first time, would start buying corporate bonds.

But shortly after the meeting, the president of Germany`s Bundesbank, Jens Weidmann, hit out at the new measures as "reckless" and suggesting they could have inintended fallout and he was "not convinced" by them.

The minutes, published four weeks after the meeting, revealed that a "few" council members were indeed critical.

The ECB takes great pains not to name the particular council members who voted for or against specific measures.With regard to the new cheap loan scheme, known as TLTRO, aimed at making cash easily available to banks on condition they lend it on to the real economy, "a few members expressed concerns about central bank operations continuing to replace the functioning of private markets and perpetuating banks` dependence (ECB) financing," the minutes stated. 

There were also "reservations" regarding the decision to expand the asset purchase programme known as quantitative easing or QE from 60 billion euros ($68 billion) to 80 billion euros per month. 

"A few members  voiced concerns as on previous occasions about a further expansion of asset purchases, as purchases of sovereign securities were, more than other monetary policy instruments, associated with a number of specific challenges and side effects," the minutes said.

"The view was reiterated that recourse to broad-based asset purchase should therefore remain a contingency instrument, to be used only as an ultima ratio in an adverse scenario, such as a situation of imminent deflation, for which there was no evidence at present."Caution was also raised about the purchase of corporate bonds, since the market for these bonds in the euro area "was generally not very liquid or large, and purchases in such a market could therefore raise level playing field issues and lead to market distortions."

As regards the additional cuts in interest rates, pushing the central refinancing rate to zero and pushing the so-called deposit rate further into negative territory, "broad support was expressed for the proposal to lower all the key ECB policy interest rates further," the minutes stated.

Nevertheless, "concerns were raised about possible undesirable side effects that could arise from moving further into negative territory, particularly in combination with fast-growing excess liquidity."

A further cut in the deposit facility rate "could unduly increase the pressure on banks` profitability, which could have adverse effects on the stability of the banking sector," some members argued.