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ECB Minutes - Upside Risks May Require Guidance Adjustment in Early 2018

- Minutes from the European Central Bank's December 13-14 policy meeting released Thursday revealed that members saw that risks to the current outlook were to the upside and may require a gradual shift in guidance in early 2018.

Last month the ECB left the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.40%, respectively.

It also confirmed that its asset purchase program would be cut in half to €30 billion ($35.8 billion) a month starting in January and would continue, until the end of September or beyond if necessary.

“The risks surrounding the outlook for activity were assessed to have remained broadly balanced, with upside risks in the near-term,” the document revealed.

To the contrary, ECB members considered that risks to the global recovery remained “tilted to the downside”.

"Geopolitical uncertainties, as well as uncertainty regarding the policy outlook in some major economies, continued to constitute downside risks," the minutes showed, although members felt that those risks had generally diminished.

However, members expressed confidence that the euro area economic recovery had moved into expansionary territory.

ECB policymakers remained cautious about inflation but noted that there were somewhat positive signs from stronger wage dynamics “across a number of countries”.

“Overall, there was broad agreement among members that the current monetary policy stance remained appropriate, with recent developments – while more positive than previously expected – generally seen to vindicate the decisions taken by the Governing Council at its meeting in late October,” the document showed.

Nevertheless, members widely agreed that future communications would require a gradual evolution.

“The language pertaining to various dimensions of the monetary policy stance and forward guidance could be revisited early in the coming year,” the minutes explained.

After the publication, the euro gained strength across the board, hitting intraday highs. EUR/USD was trading at 1.1992 from around 1.1939 ahead of the release, while EUR/GBP was at 0.8897 from 0.8866 earlier.

Meanwhile, European stock markets traded mixed. The benchmark Euro Stoxx 50 inched up 0.07%, Germany's DAX slipped 0.04%, France’s CAC 40 edged forward 0.07%, while London’s FTSE 100 advanced 0.13%.

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