ECB policy robust enough to manage shocks, can afford to wait, accounts show

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FRANKFURT (Reuters) -ECB policy is robust enough to respond to changes the euro zone inflation outlook, so the bank can afford to keep a steady hand until it gains more clarity, policymakers concluded last month, according to the accounts of their September 10-11 meeting.

The ECB left rates unchanged in September and even offered a modestly upbeat assessment of the euro zone economy, indicating that the bar for any further policy easing is high, even if U.S. tariffs still cloud the outlook.

“The current level of interest rates should be seen as sufficiently robust in managing shocks, in view of two-sided inflation risks and taking into account a broad range of possible scenarios,” the accounts of the meeting showed.

MATERIAL CHANGE AHEAD

The chance of further rate cuts declined even further in the weeks since the meeting given relatively benign data and comments from ECB President Christine Lagarde that the range of risk around the inflation outlook was narrowing.

Markets now perceive almost no chance of a rate cut this year after 2 percentage points of easing in the year to June, and see a one-in-three chance of one last move sometime in the first half of next year.

Policymakers agreed that the outlook was bound to change but the direction was unclear. “Several” thought inflation was at risk of undershooting the bank’s 2% target and a “few” feared it would go too high.

“The current situation was likely to change materially at some point, but it was currently difficult to know when and in which direction,” the ECB said in Thursday’s accounts. “There continued to be a high option value to waiting for more information.”

But policymakers were in agreement that incoming information was broadly in line with their previous forecast and some of the worst risks had receded after trade agreement with the U.S.

For now, the ECB would assess the effects of tariffs, the impact of uncertainties and other risks, like the stronger euro, Chinese dumping, the risk of a U.S. market correction, and increased defence spending, the accounts showed.

Still, investors think the door to further easing has not fully closed, given ample downside risks.

France is in turmoil, German industrial output is plunging and German exports to the U.S. are falling fast. Household savings keep going up, private consumption is weak and corporate profitability is shrinking.

(Reporting by Balazs Koranyi; editing by Mark Heinrich and Ros Russell)