ECB Shadow Council Minutes Members warn of overburdening the ECB
Some members of the ECB Shadow Council expressed concerns about the recent rise of the exchange rate of the Euro.
Growth and Inflation forecasts revised
Members of the ECB Shadow Council kept their inflation forecasts constant for 2020 at 0.3 percent and for 2021 at 1.1 percent. However, they were reducing their forecast for 2022 compared to three months earlier from 1.4 percent to 1.3 percent. The ECB June projections foresee inflation for 2020 at 0.3 percent, for 2021 at 0.8 percent and for 2022 at 1.3 percent.
The members were also reducing their GDP forecasts for this year from minus 7.0 percent to minus 7.9 percent and for 2021 from 5.5 percent to 5.4 percent. By contrast the members revised their forecasts upward for 2022 from 1.8 to 2.0 percent. The ECB June projections foresee GDP growth for 2020 at minus 8.7 percent, for 2021 at 5.2 percent and for 2022 at 3.3 percent.
| Shadow Council macroeconomic forecasts (ECB’s June projections in brackets) | ||
| HICP-Inflation* | GDP-Growth | |
| 2020 | 0.3 (0.3) | -7.9 (-8.7) |
| 2021 | 1.1 (0.8) | 5.4 (5.2) |
| 2022 | 1.3 (1.3) | 2.0 (3.3) |
Contributors: D. Antonucci, M. Annunziata; A. Bosomworth; S. Broyer; J. Callow; F. Ducrozet, J. Henry, J. Krämer, D. Schumacher, K. Utermöhl. *Harmonized Index of Consumer Prices, a weighted average of price indices of eurozone countries. | ||
Monetary Stance
Concerning the current monetary stance, most members argued for no changes. Some members expressed concerns about the recent rise of the exchange rate of the Euro and especially the speed of this appreciation. They said that this could be addressed by a verbal intervention, while others suggested that words would not be enough and action might be required in one of the next meetings.
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It was argued that the main instrument to address the exchange rate would be a further cut of the deposit rate. Two members said that the ECB should indicate its openness for such a move. This measure could be combined with an increase of the tiering multiplier to cushion negative effects of more negative rates for banks.
Implications of the Fed’s strategy shift
The members were divided about the impact of the recently announced strategy shift of the Federal Reserve (Fed). In its new strategy the Fed puts more weight on bolstering the labor market and less on worries about too high inflation. Several members stressed that the ECB already conducted some subtle changes to its framework by emphasizing the symmetry of its inflation target and its medium-term perspective. They argued that this means that the ECB is already operating in a framework similarly to the Fed.
Others warned that the strategy shift of the Fed could lead to a further depreciation of the Dollar vis-à-vis the Euro, if markets expect a looser monetary policy stance in the US than in Europe. Therefore, the ECB should avoid this impression. One member argued that the ECB would need a more radical strategy shift. He argued for a scheme of monetary control.
Mandate
Regarding its secondary mandate to support EU economic policies, most members said that the ECB should focus itself on its primary mandate of securing price stability. It was argued that it should not overburden itself with other tasks and raise expectations which it cannot meet. One member said it could stress its secondary objectives more in its communication when it addresses the broader public rather than to financial experts.
Members’ individual vote on the ECB’s deposit rate (currently minus 0.5 percent):
| Member | Affiliation | Deposit rate | Asset Purchases |
| José Alzola | The Observatory Group | Unchanged | Unchanged |
| Marco Annunziata | Annunziata Advisors | Unchanged | Unchanged |
| Daniele Antonucci | Quintet Private Bank | Unchanged | Unchanged |
| Elga Bartsch | Blackrock | Unchanged | +500 bn. |
| Andrew Bosomworth | Pimco | + 50 bp | Unchanged |
| Sylvain Broyer | S&P Global Ratings | Unchanged | Unchanged |
| Jacques Cailloux | Rokos Capital | Unchanged | Unchanged |
| Julian Callow | Element Capital | Unchanged | Unchanged |
| Frederik Ducrozet | Pictet | Unchanged | Unchanged |
| Janet Henry | HSBC | Unchanged | Unchanged |
| Jörg Krämer | Commerzbank | ||
| Thomas Mayer | Flossbach von Storch | ||
| Dirk Schumacher | Natixis | Unchanged | Unchanged |
| Katharina Utermöhl | Allianz | Unchanged | Unchanged |
Frankfurt, Germany
September 4th, 2020
Written by Jan Mallien
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