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ECB minutes reveal differences over QE tool

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(FRANKFURT) - The European Central Bank revealed Thursday that there were divisions on its policy-setting governing council over the use of its new anti-deflation tool, but a "large majority" had voted for it as previous measures were insufficient.

Publishing the minutes of its governing council's regular monetary policy deliberations for the first time, the ECB said most members had voted in favour of a new bond purchase programme at its meeting on January 22.

But "some members" had rejected it, saying such a tool should only be used as a "last resort."

At last month's meeting -- the ECB's first of the year -- president Mario Draghi had unveiled plans to embark on a policy of "quantitative easing" or QE to boost the worryingly low level of inflation in the 19 countries that share the euro.

"While the existing monetary policy measures adopted in June and September 2014 were showing encouraging results with regard to a further improvement in overall financing conditions, it had become increasingly evident that they would fall short in quantitative terms," the minutes said.

There was "a broadly shared view that the conditions were fully in place for taking additional monetary policy action," the ECB said.

There was also unanimity that such a QE programme was actually legal under the ECB's statutes.

But there was disagreement on whether it should be used just yet, the 18-page summary revealed, without identifying which participant said what.

- More transparent -

In a bid to make the thinking behind its monetary policy decisions more transparent, the ECB has decided to follow the example of the likes of the US Federal Reserve and the Bank of England and publish minutes or accounts of its closed-door debates.

The minutes are being published with a delay of four weeks.

But unlike the US Fed, for example, they do not reveal which central bank governor voted for or against a particular policy decision. The ECB said this is necessary to prevent the central bank chiefs being put under political pressure in their home countries.

The ECB is fiercely independent and its governing council members take a vow to act in the interests of the eurozone as a whole rather than their individual countries.

At the January 22 meeting, "some members" had argued that "purchases of sovereign bonds should remain a contingency instrument of monetary policy, to be used only as a last resort in the event of an extremely adverse scenario, such as a downward deflationary spiral," the minutes said.

"However, thus far there was no evidence of a serious risk of deflation, which clearly argued against mobilising the instrument of sovereign bond purchases at the current meeting," the minutes stated.

Under Draghi's plans, the ECB will buy 60 billion euros of public and private sector bonds per month from March through September 2016.

But the head of the German central bank or Bundesbank, Jens Weidmann, has openly expressed his scepticism about such a programme.

Weidmann argues that QE takes the pressure off eurozone governments to get their finances and economies in order.

The minutes of the meeting, however, revealed that such concerns were taken into account by the governing council.

"It was noted that monetary policy action, particularly in the area of sovereign bond purchases, could not be seen in isolation from the actions of other policy areas," the minutes said.

"Possible moral hazard implications for euro area governments could weaken their incentives for structural reforms and fiscal consolidation."

- No surprises -

Analysts said the publication of the minutes revealed no surprises, since Draghi always explains the reasoning behind the ECB's decisions in some depth at his regular post-meeting news conferences.

"There are few surprises in today's account of the January 22 meeting," said Capital Economics economist Jennifer McKeown.

"It supports Draghi's explanation last month that while all members backed the idea of QE, some were not ready to implement it now."

Berenberg Bank economist Christian Schulz felt the account was "an interesting read, but owes its relevance largely to the fact that it was the first time and started with a rather dramatic meeting. Whether future accounts will be as interesting remains to be seen."

Account of the monetary policy meeting of the Governing Council of the European Central Bank held in Frankfurt am Main on Wednesday and Thursday, 21-22 January 2015

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