The minutes of the June monetary policy meeting of the European Central Bank (ECB) have shown on Thursday that Governing Council members agreed that revising the medium-term inflation outlook required further action to normalize monetary policy.
Main findings summarized by Reuters
“Members agreed that it was imperative that the ECB preserve its credibility by showing its determination“.
“Members saw significant differences, however, with price pressures in the United States more related to the overheating of domestic demand and those in the euro zone reflecting, to a greater extent, imported inflation.”
“It was considered necessary act with determination“.
“If the monetary policy stance normalized too slowly, it risked increasing demand pressures.”
“The question was raised as to whether the assumptions underlying the baseline were too benign.”
“Most measures of long-term inflation expectations appeared to be still broadly anchored.”
“There are risk of eventual deterioration of employment“.
“It was generally considered that stagflation was an unlikely outcome“.
“It is likely that the inflationary pressures derived from the reopening of the tourism sectorwhich had stood out in the May figures, continue in the coming months as tourism opens up more.”
“It is necessary to prevent gradualism from being seen as an impediment to raising interest rates above 25 basis points…”
“Removing the indirect effects of energy prices from the core inflation projection would result in a 2.0% projection for core inflation in 2024.”
“Necessary look beyond negotiated wage growth and consider all elements that affect actual wage growth.”
“Gradualism should not necessarily be interpreted as slow action in small steps.”
“It was observed that a normalization of monetary policy according to the path of rates currently valued by the marketswhich was already included in the technical assumptions, it would not be enough to return inflation to 2% in the medium term.”
“Several members expressed a initial preference to keep the door open for a higher hike at the July meeting.”
“The implied ‘lag’ in raising interest rates should, in principle, be offset by either applying a larger rate hike in July or by more explicitly indicating the possibility of a larger interest rate move later in the third quarter .”
Source: Fx Street
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