ECB January meeting minutes indicate additional easing of policy in March

The ECB's January policy meeting minutes indicate that the governing council will take measures to further loosen monetary policy in March. The council members, on back of the increased global market turmoil, broadly agreed that there are downside threats to inflation and economic growth and are already materialising to a certain extent. The council members also expressed their worries regarding the possible downside threats to inflation from second-round effects.

Actually, the minutes also indicate that in a bid to combat the downside risks to inflation and growth, pre-emptive steps can be taken. However, due to the ongoing uncertainty, members thought it is early to decide on policy action in their January decisions. Hence the council unanimously decided that the monetary policy stance needs to be reconsidered and reviewed in early March.

According to the minutes, the ECB Governing Council is ready for further action. The members urged to carry out more work to make sure that all the technical conditions are there to make full range of policy options available for implementation if required. According to recent Draghi's speech, the ECB will consider the pass-through of low imported inflation and the state of its transmission mechanism. There is a clear case more action on both the fronts. Meanwhile, the economic slowdown expected in 2016 also strengthens the requirement of further policy support.

Also, there is a possibility that at least one member is concerned regarding the credibility of the central bank's inflation target of close to 2%. It was implied that after a prolonged period of undershooting, it looked logical for the Governing Council to think of a limited period of overshooting in future.

"Overall, we continue to see the ECB increasing the monthly pace of asset purchases from €60bn to €80bn and cutting the deposit rate, perhaps by 20bp, too", says Capital Economics.