European Central Bank policymakers are concerned that economic growth in the euro zone is even weaker than feared, eroding their confidence in a long-projected recovery in the second half of the year, the accounts of their April 10 meeting showed on Thursday.
With growth unexpectedly weak for months now, the ECB has raised the prospect of more support for the economy but argued that more analysis was needed to see if the rapid loss of economic momentum is persistent or temporary.
But action is all but certain in June, with the ECB expected to support growth by giving banks very generous terms at its upcoming tender of ultra cheap loans to ensure that credit continues to flow to the economy.
"It was acknowledged that some recent data had turned out even weaker than expected," the accounts of the meeting showed. "There was now somewhat less confidence in the baseline scenario (for growth) and that the range of other possible outcomes had widened."
Policymakers said that the terms of the new banks loans, called targeted longer-term refinancing operations or TLTROs, would be decided at one of the upcoming meetings but the accounts provided few details about their thinking.
"Some arguments were put forward in favour of pricing the new operations so they would primarily serve as a backstop, providing insurance in times of elevated uncertainty," the accounts showed.
"Other arguments supported the view that the TLTRO-III operations should be seen as a potential tool for adjusting the monetary policy stance," the ECB added.
In any case, the pricing will take into account economic growth and how well banks transmit the ECB's policy stance to the real economy, the minutes showed.
But policymakers did not appear to have any significant discussion about the impact of negative rates on banks and the need for compensation.
One form of mitigation, the introduction of a multi-tier deposit rate, could help banks with abundant excess reserves but policymakers speaking on and off the record have not voiced any enthusiasm for such a scheme.
Indeed, the minutes only showed a discussion about the need for a future discussion on whether the side effects of negative rates need to be mitigated.
In a possible hint about the direction of such a conversation, policymakers noted that the negative ECB deposit rates was still contributing to increased lending volumes in all loan categories.
Although fresh ECB measures could prop up the economy, the ECB's problem is that the bloc's troubles are largely outside its sphere of influence.
With global trade slowing on the ripple effects of the trade war between the United States and China, the bloc's troubles are largely imported, contributing what ECB chief Mario Draghi called "pervasive uncertainty".
Indeed, fresh business data on Thursday pointed to increasing weakness in the manufacturing sector, suggesting that its recession is persistent, and analyst predict even more pain. (Full Story)
"The global outlook remained subject to the continued risk of an escalation of trade conflicts and the uncertainty surrounding the withdrawal of the United Kingdom from the EU," the ECB said in the minutes.