- Inflation expectations currently remained well anchored for the medium-term
- But high short-term inflation expectations had continued to persist since the outbreak of the war
- Against this background, members concluded that the risks to the inflation outlook were to the upside
- The longer energy prices stayed high, the more likely they were to drive up broader inflation through indirect and second-round effects
- Members widely agreed that the incoming information had been broadly consistent with the baseline in the June projections
- Members took comfort from the fact that most survey and market-based inflation expectations had remained well anchored
- Inflation outlook remained vulnerable to renewed shocks and that the risks surrounding the inflation outlook remained to the upside
- Members stressed that the incoming data provided a strong case for a pause in rate hikes at the July meeting
- There had been little evidence of second-round effects materialising
- Some members noted that incoming data had underlined the case for further policy tightening
- And that they would not have opposed raising rates at the July meeting
- These members stressed the low likelihood of a situation in which a further rate hike would not be warranted
- These members thus placed stronger emphasis on the upside risks to the inflation outlook, arguing that rates needed to move into mildly restrictive territory
- But in spite of these concerns, all members were willing to rally behind the decision to keep policy rates unchanged
- It was argued that pre-emptive action could be justified if the situation turned sufficiently acute
- However, under the current circumstances the most prudent course of action was to move slowly, reflecting the option value of waiting
- Members emphasised the need to communicate that risks lay to the upside for inflation
- It was important not to suggest that the pause in rate hikes at the current meeting meant that the end of the tightening cycle had been reached
- Full accounts
There’s no real surprises here and the language pretty much just reaffirms the angle that the ECB has been working in selling a rate hike in September.
As a reminder, the ECB is widely expected to raise key interest rates again next month in better positioning themselves in the fight against inflation. The next rate hike will arguably only put monetary policy in mildly restrictive territory. So, that’s the floor level in which they need to be at in preparing for worse developments on the inflation front.
This article was written by Justin Low at investinglive.com.