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More ECB bond-buying just became a safer bet

The European Central Bank (ECB) considered adding more stimulus to its struggling economy at its last policy meeting and saw "potentially worrisome" downward revisions in consumer price growth.

According to the minutes of the meeting, released Thursday, the risk of growth-sapping deflation has increased since the ECB's projections in September and the central bank is anticipating that the inflation rate will take longer to move back to its 2 percent target.

"The impact of external factors and heightened uncertainty raised the possibility that the ECB's measures, despite their magnitude, might not be gaining sufficient traction in the present environment to achieve their ultimate objective in terms of inflation rates," the minutes stated.

"It was argued that, in such an environment, the risk of deflation remained relevant. Against this background, the view was put forward that a case could be made for considering reinforcing the ECB's accommodative monetary policy stance already at the current meeting and, in any case, to act sooner rather than later."


European Central Bank President Mario Draghi
Ralph Orlowski | Reuters
European Central Bank President Mario Draghi

ECB President Mario Draghi has hinted that the ECB could look to ramp up or extend its current trillion-euro quantitative easing program. The meeting's minutes reinforced this view with the council members saying they would re-examine the degree of policy accommodation at its December meeting, adding that it was ready to act if necessary.

Any recovery in the 19-country single currency union has failed to gain any traction following the global financial crash of 2008 and the sovereign debt crisis two years later.

The potential for a Greek exit has been quashed with more financial aid packages but the euro zone is yet to reach second gear. Unemployment remains above 10 percent, growth reached a feeble 0.3 percent in the last quarter and inflation is well below to 2 percent target, up a meager 0.1 percent in October.

Speeches this week from ECB members Peter Praet and Yves Mersch only added to the belief that more easing is coming. Praet, a member of the executive board said that it was essential that "uncertainty does not give rise to indecision" in terms of policy, adding that the central bank stands ready to act in the face of subdued inflation.

Another Governing Council member, Ignazio Visco, even mentioned the recent Paris attacks in a speech Thursday. Recalling the 129 deaths at the hands of the Islamic State last week, he said that it could hurt confidence and may make the recovery of investment in Europe harder to sustain.

David Kohl, chief currency strategist at Julius Baer, is one analyst predicting some major announcements when the ECB meets again in December. He expects the deposit rate to be reduced by 10 basis points to -0.3 percent and the volume of its monthly asset purchases to possibly rise by 10 billion euros ($10.7 billion) to 70 billion euros.

Yields on benchmark euro zone bonds edged lower Thursday as traders took bets that the ECB would ramp up its buying spree. The German 10-year yield fell to 0.4990 percent after closing at 0.509 percent on Wednesday. Spain's 10-year yield slipped to 1.692 percent from 2.02 percent after a Treasury auction during the morning session.

The euro edged a little lower after the release, pushing down to 1.0691 against the dollar after hitting a session high of near 1.072.