ECB’s September minutes show concerns about downside risks

The account of ECB's monetary policy September meeting suggests that relative to July, there was broad agreement among governing council (GC) members about the downside risks posed to the euro area recovery and inflation by worsening global conditions, especially developments in EM and China. 

The key conclusion of the GC was that "the downside risks had clearly increased, and there was a need to carefully monitor developments and policies outside the euro area". 

Critically, the GC shared the view that, while euro area inflation was expected to pick up, there had been a recent deterioration in the outlook for inflation that needed to be assessed further to distinguish between temporary and more persistent factors that were relevant for the medium term. 

In their assessment of the risks surrounding the inflation outlook, there was broad agreement that the risks were tilted to the downside, given lower commodity prices, a stronger euro exchange rate and a somewhat lower growth outlook.

"Against this background, there was wide agreement that, while recent market volatility was a sign of increased risk and heightened uncertainty over the economic outlook, it was too early to form a sound judgment on whether such developments would have a lasting effect on euro area economic developments and, in particular, the medium-term outlook for inflation", notes Barclays.