Rates have hit lower bound, say ECB minutes

Interest rates have hit a lower bound in the eurozone, the minutes of the European Central Bank's (ECB) latest monetary policy meeting said today.

Dubbed the "account" of the meeting by the ECB, but analogous to the minutes released by other central banks, this is only the second time the central bank has published such a document. The ECB first yielded to pressure to publish minutes in February, detailing the meeting that saw it launch quantitative easing (QE).

"Caution was expressed in view of some market perceptions that the deposit rate could fall below -20 basis points, which, it was affirmed, should be regarded by the governing council as the effective lower bound," the minutes said today.

Central banks have been plumbing the depths of negative interest rates, having broken through the zero-lower bound in many cases. The ECB's main refinancing rate remains fractionally positive at 0.05%, but others, such as Sveriges Riksbank, have pushed even this into negative territory.

The ECB also outlined some of the initial effects of its QE, launched on January 22. Council members noted markets responded positively to the announcement even before purchases began and there were "signs of a turnaround in inflation dynamics".

This allowed for a degree of "prudent optimism" regarding the recovery of growth and return of inflation to target, the minutes said. Inflation in the eurozone was -0.6% in January but this rebounded slightly to -0.3% in February.

The ECB's March staff projections expect inflation of 0% in 2015, rising to 1.5% in 2016 and 1.8% in 2017. This reflected a slight downward revision for 2015 resulting from the oil price shock, but an upward revision for 2016 based on the QE measures, the minutes said.

Despite committing to the current level of QE, council members also considered possible options for ramping up the QE programme. In particular the issue limit of 25% could technically be raised "on some future occasion", where there were no legal barriers.

On launching QE, the ECB had committed not to purchase any more than 25% of an individual issue, and not more than 33% of any one country's debt.

The ECB affirmed a September 2016 end-date for the asset purchases, but this is only an "intention", and could therefore be extended.

"Overall, the sentiment was widely shared that with the January 2015 monetary policy decisions, the governing council had added a sizeable further stimulus and had now deployed almost the full range of the instruments at the disposal of monetary policy," the minutes said.

A notable omission from the minutes is any indication of the stance of individual council members. Unlike many central banks, the ECB does not reveal members' votes.

ECB president Mario Draghi defended the policy in a speech in March 31, saying not publicising the votes "allows members to support the decision of the committee, even if they may have personally preferred a different course of action".