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Inside the ECB: What to watch from the minutes

The euro is trading flat and Bund yields have crept up this morning as investors await the latest set minutes throwing light on the European Central Bank’s internal discussions over the longevity of its stimulus measures.

Following a “mini-taper tantrum” sparked by upbeat comments on the eurozone economy from Mario Draghi last week, the publication of June’s policy meeting will be more closely-watched than ever. They are released at 12.30 BST.

The ECB dropped the option of cutting interest rates from their record lows at its June meeting. However it kept in place a commitment to expand the size of its record bond-buying programme should inflation fall short of its target.

But markets have since been roiled by Mr Draghi’s hints at a phasing out of the central bank’s stimulus measures – driving the euro to its highest level of the year. ECB officials have since dampened speculation of any premature “tapering”.

Chief economist Peter Praet has repeated that inflation remains below target while executive board member Benoît Cœuré said yesterday that no changes to monetary policy have been discussed by the governing council.

Investors will be looking for any discussions on further tweaks to the ECB’s forward guidance and possible QE exit strategies in the June minutes, according to analysts at Barclays:

We would look for any hints with regard to ECB’s next steps on forward guidance and the issue of sequencing of monetary policy (on QE and negative depo rate).

We would look for any information on which parameters or language could be changed next. We would also examine the discussion around the inflation prospects and around the debate on the lack of wage inflation.

Michala Marcussen at Société Générale thinks the governing council will have reached a “broad agreement on the need for continued substantial stimulus and on the still-high degree of labour market slack that is preventing inflation from recovering”. She forecasts ECB tapering will not start before January next year.

At his June press conference, Mr Draghi stressed that policymakers had not spoken about the possibility of “normalising” monetary policy. With the June discussion already a month old, Cathal Kennedy at RBC Capital Markets thinks the minutes will not “provide any more market relevant information than already available from Draghi’s last Q&A session”.

Piet Philip Christiansen at Nordea will also be reading the minutes more in hope than expectation:

We will look for any clues on tapering albeit the chances are slim for any news.

Even without a suggestion of tapering, the ECB’s bond-buying is coming under pressure. The central bank’s latest bond holdings data show it is diverging significantly from its capital key rules for some countries – over-buying French and Italian bonds and cutting back on German Bunds last month.

The ECB has deployed more flexibility over its QE-rules in recent months as its attempts to keep hitting a monthly purchase target of €60bn.

Image via Bloomberg