ECB wary of sending misleading policy signals, minutes show

By and large, monetary policy-makers continued to tread quite carefully when it came to moving to a less accommodative stance, the minutes of their last policy deliberations revealed.

Rate-setters at the European Central Bank discussed the possibility of removing the reference to possible further increases in the pace and/or duration of their asset purchases when they last met on 9 July.

Those indications from the meeting minutes set of a flurry of speculation in markets on Thursday that they were indeed shifting their stance.

Nevertheless, the same minutes revealed that rate-setters believed that "it was necessary to avoid signals that could trigger a premature tightening of financial conditions, which in turn could put the progress made towards a sustained convergence towards the Governing Council's inflation aim at risk, thereby prolonging the need for extraordinarily accommodative monetary policy."

Commenting on the content of the minutes, Jennifer McKeown, chief European economist at Capital Economics, said: "On balance, we still see the Bank tapering its asset purchases from the current pace of €60bn per month to zero by June, starting in January.

"But if the euro or bond yields rise significantly further in the meantime, the pace may be even slower. And, if and when it does taper, we suspect that the ECB will also strengthen its guidance that interest rate hikes will not follow quickly."

Earlier on Thursday, Steven Major, global head of fixed income at HSBC told clients that German government bonds, or bunds, were beginning to reflect anticipation of "an extremely gradual" reduction in ECB policy accommodation.

His year-end 2017 target for Bund yields was 0.90%.