European Central Bank officials saw last month’s decision to raise interest rates by another 25 basis points as a “close call,” according to an account of their last policy meeting.
(Bloomberg) — European Central Bank officials saw last month’s decision to raise interest rates by another 25 basis points as a “close call,” according to an account of their last policy meeting.
Governing Council members assessed that the risks of tightening too much and the risks of tightening too little had become “more balanced,” the account of the Sept. 13-14 gathering published Thursday showed.
“In view of the considerable uncertainty, members highlighted that the decision between raising rates and pausing was a close call, and that tactical considerations also played a role,” the account said.
Here’s what the account revealed on key topics:
Interest rates
- Officials supporting the hike “emphasized the still high levels of inflation and the fact that a rate increase would signal a strong determination on the part of the Governing Council to bring inflation back to the target in a timely manner”
- “Emphasis was also placed on the upward revisions to the headline inflation projections for the first two years of the projection 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”
- Governing Council members how preferred to hold rates steady “viewed the data that had become available since July as, on balance, not supporting a further rate hike” as the economy had weakened and inflation was projected to return to the target by the end of the projection horizon
- “These members also maintained that a lot of the pass-through of past rate hikes was still pending”
Inflation
- “Overall, the process of disinflation seemed to be proceeding largely as expected”
- “Comfort was drawn from the fact that core inflation figures had no longer surprised to the upside over the past few months”
- “Members saw most indicators of underlying inflation now more clearly on a moderately declining path and closer together”
- “As regards wage growth, there were limited signs that this was starting to turn, although hard evidence of an inflection point still needed to emerge”
Economic Outlook
- Officials agreed that “growth was likely to remain subdued in the coming months”
- “It was widely felt that, with hindsight, the June projections had been too optimistic about the strength of the economic recovery in 2023”
- It was still felt that “it remained reasonable to expect a gradual economic recovery to take hold, thanks to a recovery in people’s real incomes from rising wages and a strong labor market”
Policy Transmission
- “Members noted that ample evidence could now be found that this was proceeding strongly, more so than expected”
- “While this could in part reflect the exceptionally strong increase in the key ECB interest rates, staff analysis suggested that the impact went beyond the usual pattern of transmission”
- “Moreover, a significant part of the interest rate pass-through was still pending and likely to restrain economic activity and inflation over the projection horizon”
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