FRANKFURT European Central Bank policymakers must exercise great caution before even nuanced communications shifts to prevent undue market turbulence, rate setters concluded at the bank's April 27 policy meeting.
The measured stance suggests that policymakers may be hesitant to make any significant change in their policy path at the June 8 meeting, opting for only a small nod to the improved growth outlook, worried that a bigger signal could unravel years of stimulus.
"It was felt that the Governing Council's communication should be adjusted in a very gradual and cautious manner as, the current juncture, monetary and financial conditions were particularly sensitive to changes in communication," the ECB said in the minutes, published on Thursday.
Meeting late last month, policymakers acknowledged that risks have continued to decline but said they were skewed to the downside, maintaining a long-standing stance even as the euro zone is enjoying its best growth run in a decade.
"After a long period of very accommodative monetary conditions, even small and incremental changes in communication could have strong signaling effects when interpreted as heralding a change in the monetary policy stance," the minutes said.
Rates setters, however, stressed that new staff forecasts due in June would form the basis of future discussion.
Markets expect policymakers to finally declared growth risks balanced next month but the is still seen keeping the door open to further rate cuts or even bigger asset buys if necessary.
"Any substantial change in communication needed to be motivated by some more evidence that the present indications of acceleration in activity found confirmation in hard data and fed through to a sustainable adjustment in inflation," chief economist Peter Praet said, according to the minutes.
While there was broad agreement regarding the balance of risk, some policymakers argued that they were balanced.
Among the key risks to growth, policymakers said that uncertainty about U.S. policies, Britain's departure from the EU and China's rebalancing needed to be monitored.
"In particular, reference was made in the discussion to the high degree of uncertainty surrounding short-term developments i the U.S. economy," the minutes showed.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa)