All not doves at ECB

Minutes of European Central Bank’s (ECB) March meeting, in which the central bank unveiled a package of measures including negative rates, broadening of purchase portfolio to include corporate debt securities, four TLTROs and an increase in asset purchase, shows that ECB is not just filled with doves, there are some hawks too, who objected to the latest strings of easing.

Four of twenty one governing council members objected over the package, while two voted against it. German Bundesbank president Jens Weidmann and Dutch governor Klaas Knot are the prominent two, who had objected further easing. Major objections came in inclusion of corporate bonds and increase in asset purchase program as well as four TLTROs. Moreover ECB’s decision to pay banks as much as 0.4% to spur lending to households and businesses.

Concerned members expressed that this additional payment may lead to distortions and support some banks’ weak business models, instead of reforms. Hawkish members expressed concern about distortions in corporate bond markets by ECB buying, since it’s not as liquid as government bonds.

Doves on the other hand defended the stimulus saying it preserves and strengthens ECB’s credibility and improve lending to smaller enterprises.

While ECB’s package was very effective in bringing down corporate yields, increase corporate issuance and flattening of the yield curve, it has so far failed to weaken Euro, which as of now trading at 1.138 against Dollar.