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ECB debated reducing bond purchases in June meeting: accounts

FRANKFURT (Reuters) – European Central Bank policymakers debated a cut in bond purchase volumes at their June 10 meeting before agreeing to maintain an elevated level of stimulus, the accounts of the meeting showed on Thursday.

Facing rising borrowing costs amid a still-fledgling recovery, ECB policymakers appeared worried that an early retreat from the market could push yields higher and choke off growth as some key sectors were not yet on solid enough footing, even if growth was now relatively quick.

“In view of the better outlook for growth and inflation, and the associated upside risks, it was, however, also argued that, to provide the same degree of accommodation, asset purchases should be scaled back somewhat,” the ECB said.

Ultimately however, financing conditions were assessed as “too fragile” to allow a meaningful reduction in the pace of purchases without risking a disorderly rise in yields, the ECB added.

But commentary from the June meeting may not provide firm guidance about the bank’s next policy move as a new strategy, unveiled on Thursday, is likely to be primary guiding force for decisions as early as the ECB’s July 22 meeting.

The new strategy set the bank’s inflation target at 2%, giving up its previous formulation of “below but close to 2%” and signalled that periods as low inflation, as currently experienced, may require more persistent monetary policy action.

While ECB President Christine Lagarde did not fully explain what this would mean in practice, sources close to the discussion said the bank is contemplating a new policy guidance for the July 22 meeting that would signal an even longer period of policy accommodation.

While there was unanimous support for the eventual policy decision in June, several conservative policymakers argued at meeting for somewhat lower bond purchases under the ECB’s 1.85 trillion euro Pandemic Emergency Purchase Programme.

(Reporting by Balazs Koranyi; Editing by Catherine Evans)

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