ECB ACCOUNTS REVIEW: Policymakers broadly supportive of move to pull the trigger (most likely) one last time

Analysis details (13:57)

The account of the ECB's September 14th meeting revealed that a "solid majority of members expressed support for the 25 basis point rate increase". That said, some members expressed a preference for maintaining rates at their current levels. Additionally, members highlighted that the decision between raising rates and pausing was a close call. However, it was judged that a pause could give rise to speculation that the tightening cycle was over, which increased the risk of a rebound in inflation. Furthermore, not hiking could also send a signal of the Governing Council being more concerned about the economy and a potential recession than too high inflation. Also backing the decision to move on rates was the emphasis placed on the upward revisions to the headline inflation projections for the first two years of the forecast horizon and the fact that the projections were conditioned on market interest rates, which embodied a further rate increase by the end of the year. Looking ahead, it was argued that a large share of monetary tightening was still in the pipeline, and this could compress demand more than was currently envisaged. At the same time, the point was made that most of the financial tightening had already happened in 2022, which could imply that the tightening impact could soon reach its peak. Overall, the account offers little new to investors with the ECB clearly on the precipice of being comfortable with rates at existing levels. The Bank will try to keep optionality over further tightening in order to maintain credibility, however, given the action taken so far it is unlikely that such a move will be required based on the current trajectory. 

12 Oct 2023 - 13:56- Fixed IncomeResearch Sheet- Source: Newsquawk