ECB says inflation could miss knocked-down forecast: minutes

[January 14, 2016]  FRANKFURT (Reuters) - Euro zone inflation could miss the European Central Bank's already lowered forecast but the bank needed to maintain some powder dry at its December meeting in case more policy easing would be required later, the meeting's minutes showed on Thursday.

Risks, particularly from emerging markets and geopolitical turmoil, continue to weigh on euro zone growth while governments are still not doing their part in fostering growth with reforms and fiscal accommodation, the bank said in the accounts of its Dec 3 policy meeting.

The ECB cut its deposit rate to -0.3 percent from -0.2 percent at the meeting and extended its asset purchases by six months to March 2017, hoping to boost inflation through increased lending and consumption.

But its move disappointed markets, which had priced in even bolder action as long-term inflation expectations, low oil prices and volatility in emerging markets appeared to argue for more.

"A cut in the deposit facility rate of 10 basis points was seen as unlikely to trigger material negative side effects and was also seen as having the advantage of leaving some room for further downward adjustments, should the need arise," the bank said.

"The risks surrounding the outlook for HICP inflation were also assessed, on the balance, to remain on the downside," it added.

The ECB said that some members disagreed with the decision, with some proposing a bigger, 20 basis point rate cut while keeping the bank's asset purchase program unchanged.

Others wanted even more accommodation with, some suggesting an increase in the monthly buys and an even longer extension of the program.

The euro firmed and euro zone bond yields rose after the decision, with the currency hanging on to its gains even after the U.S. Federal Reserve hiked rates later that month, indicating that the world's top two central banks would be moving in opposite directions in the foreseeable future.

Oil prices have fallen by around 20 percent since the December meeting and long-term inflation expectations have sunk lower, indicating that the ECB may still have to ease its policy stance.

Still, even if the bank is forced to act again, many policymakers appear wary of moving soon and would prefer to give their previous measures more time to act.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa)

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