There is debate about a higher interest rate hike in July, shows ECB minutes

European Central Bank officials debated indicating a further rate hike for the month of July and were keen to keep the door open for a bigger move at subsequent meetings to fight inflation, the minutes of their 8-8 monetary policy meeting showed. June 9 this Thursday (7).

Fearing that rapid inflation will take root, the ECB indicated at its June meeting a 0.25 percentage point increase in the following month and a potentially larger move in September, to be followed by a gradual tightening in the following months.

But some of its message was replaced at an emergency meeting just six days later, when officials decided to devise a new bond-buying scheme aimed at dampening rising yields on the bloc’s periphery, particularly in Italy.

“Several members expressed an initial preference to keep the door open for a higher hike at the July meeting,” the ECB said in the minutes.

“It was necessary to prevent gradualism from being seen as an impediment for the interest rate to rise more than 0.25 point”, said the ECB. “There was consensus that gradualism should not necessarily be interpreted as slow action in small steps.”

Separately, the ECB said it would not release the minutes of the June 15 emergency meeting. The ECB’s monetary outlook is getting darker by the day. Inflation is still accelerating, but growth is now cooling off sharply.

Faster increases may be needed to tame price growth, but that will only exacerbate the economic slowdown, which could easily turn into a recession.

Markets now expect the ECB to raise rates by a total of 1.35 points over the rest of the year, with moves at each of the next four meetings.

But around 0.30 point had already been priced in in recent weeks, as high prices and cuts in Russian gas flows increase the risk of a recession.