ECB sees need to counter doubt over ability to hit inflation goal

Bloomberg

European Central Bank (ECB) officials expressed concern at their latest policy meeting that some observers doubted their ability to restore price stability, prompting the Governing Council to plan for potential fresh monetary stimulus.
Council members broadly agreed that a downward trend in inflation expectations was a cause for concern, and that the euro area’s economic slowdown was likely to be more protracted than expected. While external factors such as trade tensions were driving a contraction in manufacturing, that could be a leading indicator for the services sector, according to the account of the July 24-25 session.
Investors are betting on at least an interest-rate cut on September 12, and some economists predict that large-scale asset purchases will be restarted.
Fresh ECB easing would come amid a worldwide push to stimulate growth as global expansion falters under trade tensions.
ECB officials called for governments that have room to spend to use it. They stressed that the “contingency of significant further deterioration in euro-area economy would call for fiscal policy to assume a more prominent role in sustaining demand.”
ECB’s options for adding more monetary stimulus depend on how far it’s willing to burden banks and stretch its own rules. The deposit rate is at minus 0.4% and Draghi has signaled further reductions would need to come with measures to soften impact of policy on banks, who can’t easily pass the charge onto retail depositors.

Reviving the bond-buying program may require some tweaks to self-imposed limits on how much debt from governments it can buy, rules aimed at avoiding distorting the market and breaching laws banning the financing of governments.
The Governing Council will next meet to set policy on September 12 and update their economic projections. That will the penultimate meeting of Draghi’s term, meaning he’ll leave without ever raising interest rates as president.
He’ll step down on October 31, the same day Britain is scheduled to exit from the European Union, leaving former International Monetary Fund chief Christine Lagarde to take over for the next eight years.