ECB to issue minutes, move to six-week schedule

The Bank announced that the frequency of monetary policy meetings will change from a monthly to a six- week cycle as of January 2015. The ECB also said that it will start to issue “accounts” – i.e. some form of minutes – of its policy meetings as of next year.

Last but not least, the ECB released more detail about the new TLTRO programme. UBS’ conclusion remains that the TLTRO will be an attractively priced source of funding for banks, particularly in the periphery, and that at least in the first two auctions in September and December 2014, the funding will come with little conditionality attached.

Following the comprehensive set of monetary policy measures announced last month (5 June), the ECB did not reveal new measures today, in line with expectations. The Bank continues to expect a moderate economic recovery with low inflation, but not deflation.

As regards the forward guidance, the ECB reiterated that policy rates will stay at present levels for an extended period, while maintaining an easing bias by stressing that “the Governing Council is unanimous in its commitment to also using unconventional instruments (…), should it become necessary to further address risks of too prolonged a period of low inflation.”

Mr Draghi said that the ECB would first like to see the impact of last month’s measures, although the ECB could still kick off QE if the medium-term inflation outlook deteriorated. Since we also expect to see a moderate economic recovery (1.0% growth this year, 1.5% in 2015), with inflation creeping up again slowly in Q4 2014, to 1.0% y/y, our base-case scenario remains that ECB rates will stay on hold for the foreseeable future and that QE will not be deployed.

The key news from today’s ECB meeting is of a more technical nature:

Firstly, the Bank announced that the frequency of monetary policy meetings will change from a monthly to a six-week cycle, as of January 2015. The revised meetings schedule will be published on 16 July. Mr Draghi explained that the monthly sequence had become too tight and that the market had developed “self- fulfilling expectations” that the ECB would “act every month”.

Mr Draghi thus seemed to indicate that the markets had at times put undue pressure on the ECB, which the Bank is now trying to reduce by holding policy meetings less frequently. The new meeting schedule will coincide with the new voting mechanisms in the ECB Governing Council that will become necessary when the accession of Lithuania in January 2015 expands the monetary union to 19 members.