ECB: some Governing Council members open to a rate rise as early as July
Markets are now pricing in a rate hike at the 10 September meeting
(Il Sole 24 Ore Radiocor) - Some members of the ECB’s Governing Council would not have opposed a rate rise as early as the meeting on 22 and 23 July, believing that the data published after the June meeting had strengthened the case for further monetary tightening. This is evident from the minutes of the meeting published today by the European Central Bank, which is due to meet again on 10 September, a date on which the markets now take it for granted that there will be an adjustment to interest rates.
According to these members, it was unlikely that a scenario would materialise in which a further rate rise would not be justified. Indeed, the analyses carried out in June indicated the need for further rate rises across all the scenarios covered by the projections, including the most favourable one. The benefit of waiting was therefore considered to be limited. A lasting resolution to the conflict in the Middle East had also become less likely due to disagreements over Iran’s nuclear programme and control of the Strait of Hormuz. Moreover, more resilient aggregate demand than expected was enabling businesses, including refineries, to pass on part of the cost increases to customers. Members in favour of a more restrictive stance therefore attached greater importance to the upside risks to inflation and emphasised that delayed action could slow the return of price growth to 2 per cent, affect expectations for a longer period and subsequently necessitate an even tighter stance, with negative consequences for households and businesses. Although second-round effects had not yet emerged, monetary policy should have acted before they materialised to avoid falling behind inflation. Despite these concerns, all members indicated their willingness to support Chief Economist Philip Lane’s proposal to keep rates unchanged, provided that the statement reaffirmed the Governing Council’s firm commitment to ensuring that inflation stabilises at the 2 per cent target in the medium term.
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