ECB Minutes: Inflation was far too high and likely to stay above the Governing Council’s target for an extended period, projected inflation path remained tilted to the upside over the entire projection horizon

RATES:

• While a 25 basis point increase was seen as clearly insufficient to address the current inflation outlook, it was argued that a 50 basis point hike would be large enough to signal determination in proceeding with the interest rate normalisation that the Governing Council had begun at its July meeting.


• With the looming risk of a recession, which would mitigate inflationary pressures, an increase of 50 basis points, if part of a sustained path towards more neutral rate levels, might prove sufficient to return inflation to the Governing Council’s 2% target over the medium term once transitory shocks had faded

INFLATION:

• Inflation was far too high and likely to stay above the Governing Council’s target for an extended period, projected inflation path remained tilted to the upside over the entire projection horizon.


• The size of the upward revision in the staff inflation projection for 2024 was not seen as sufficiently large as to require a more aggressive response, since it was uncertain how much inflation was likely to dampen domestic demand and high uncertainty surrounded the projections, particularly towards the end of the projection horizon.


• Inflation expectations were still anchored and wage growth remained moderate, with little evidence of second-round effects.


• It was maintained that the expected weakening in economic activity would not be sufficient to reduce inflation to a significant extent and would not in itself bring projected inflation back to target.

EURO:

• Lower exchange rates provided limited support to economic activity in an environment of continued global supply bottlenecks and shortages.


• Without a timely reduction in monetary policy accommodation, inflationary pressures resulting from a depreciation of the euro might increase further, while lower exchange rates provided limited support to economic activity in an environment of continued global supply bottlenecks and shortages.

STANCE:

• It was argued that policy would remain expansionary after a 75 basis point rate hike.


• It was argued that acting forcefully now could avoid the need to increase interest rates more sharply later in the economic cycle when the economy was slowing down. 

Full minutes here

06 Oct 2022 - 12:30- Fixed IncomeData- Source: ECB