European Central Bank policy makers expressed satisfaction with the start of their large-scale asset-buying program, while saying inadequate structural reforms could still thwart long-term growth.
“Members agreed that emphasis needed to be placed on a steady course of monetary policy with a focus on the firm implementation of the Governing Council’s recent monetary-policy decisions,” according to a summary of the April 14-15 meeting published on Thursday. “At the same time, a strong signal needed to be sent to euro-area governments urging them to press ahead with structural reforms and to take measures to improve the business environment.”
Now in its third month, the euro-area incarnation of quantitative easing has so far notched up 122 billion euros ($136 billion) in public-sector bond purchases, and is intended to run until September 2016. Since the April policy meeting the ECB hasannounced a tweak to its purchase schedule, front loading buying to take a summer lull into account.
“It was underlined that the design of the program provided sufficient flexibility for it to be adapted if circumstances were to change and should the need arise,” the account showed. It noted that purchasing agency and supranational debt had proved “more challenging” than buying government debt.
ECB chief economist Peter Praet told the Governing Council, which comprises the central-bank governors or their representatives from the 19 euro-area nations plus the 6 ECB board members, that the currency bloc had gained further momentum since the beginning of the year, and that risks to the outlook had become more balanced.
“The positive economic outlook for the euro area, as embedded in the March ECB staff projections, depended on the full implementation of the program and was still subject to a number of downside risks and uncertainties,” the account showed.
Those uncertainties include whether governments will fail to act in the favorable conditions to lift investment and potential growth, according to the account.
“Members expressed that the risk of insufficient reform progress was particularly pronounced with regard to structural policies, which were hampered by resistance to change,” it showed. “In the absence of structural reforms, there were serious risks that potential growth would remain low and investment demand would not pick up as strongly as expected.”
The presentation delivered by Benoit Coeure, the board member responsible for market operations, hinted at difficulties in achieving targets in all sub-sections of the QE program. The ECB plans to purchase 60 billion euros a month on government debt, agency and supranational bonds, covered bonds and asset-backed securities.
For covered bonds, for example, cumulative purchases amounted to 63.6 billion euros at the end of the first quarter, Coeure said. At the same time, “given the traditionally slow second quarter in primary-market issuance in the covered-bond market, such strong issuance and purchases might not be observed in subsequent weeks.”
The ECB has decided to “moderately frontload” asset purchases in May and June, ahead of an expected low-liquidity period in the summer months, Coeure said in London on May 18. The remarks sparked a plunge in the euro and a surge in bond prices when the comments were published the next day.
In the first two months of QE, the ECB met its monthly purchase target even as central banks of some smaller euro-area countries struggled to find enough bonds to buy.