ECB divided on size of deposit rate cut in December

Some European Central Bank (ECB) policymakers wanted a bigger interest rate cut on its deposit facility in December, minutes showed on Thursday, after the bank disappointed some analysts by making only modest adjustments to policy.

"Some members expressed a preference for a 20 basis point cut in the deposit facility rate at the current meeting, mainly with a view to strengthening the easing impact of this measure and reflecting the view that, to date, no material negative side effects on bank margins and financial stability had emerged," minutes from the ECB's meeting on December 2-3, published on Thursday, said.

Daniel Roland | AFP | Getty Images

At the beginning of December, the European Central Bank (ECB) cut the interest rate on its deposit facility by 10 basis points to minus 0.3 percent. It also extended its asset-purchase program by six months until March 2017 at the earliest.

The changes underwhelmed markets, however, following earlier hints by ECB President Mario Draghi that the euro zone might be due for another big injection of liquidity.

The ECB minutes said there was "broad support" for shifting the end date of asset purchases.

"This extension was regarded as an appropriate measure for additional monetary policy stimulus, as measures directly affecting the yield curve provided strong potential for monetary easing, when operating at the lower bound. Such an extension of the horizon of the APP (asset-purchasing program) would be firmly in line with the Governing Council's forward guidance," the minutes said.

The option was raised of extending the program by longer than six months or of expanding the monthly volumes of purchases. However, there was "broad agreement" that such measures were not yet warranted, the minutes said.

Across December, the ECB bought public and private sector assets worth 50.3 billion euros ($54.9 billion) under its quantitative-easing program. Purchases were resumed on January 4, after the Christmas holiday.

With the ECB still easing after the U.S. Federal Reserve's hiked interest rates in December, some analysts are concerned by the divergence of policy among the major central banks. The Bank of England is yet to make its first rate hike and the Bank of Japan is continuing with its own quantitative-easing program.

The minutes also suggested that euro zone inflation could miss the ECB's already-lowered forecast. In December, euro area annual inflation was seen at 0.1 percent in 2015, 1.0 percent in 2016 and 1.6 percent in 2017.

"Compared with forecasts by other international institutions and the private sector, the December 2015 projection for euro area HICP (harmonized index of consumer prices) inflation remained at the higher end of the range for 2017, while for 2016 it was broadly in line with the forecasts of other international organizations. Risks to this outlook remained on the downside," the minutes said.