ECB June Accounts: Some members want to keep door open for larger rate hike in July

The accounts of the European Central Bank’s (ECB) June policy meeting showed on Thursday that Governing Council members agreed the revised medium-term inflation outlook required further steps to be taken in normalising monetary policy.

Key takeaways as summarized by Reuters

“Members agreed that it was imperative for the ECB to preserve its credibility by showing its resolve.”

“Members saw important differences, however, with price pressures in the United States more related to overheating domestic demand and those in the euro area reflecting, to a larger extent, imported inflation.”

“Determined action was judged to be needed.”

“If the monetary policy stance were normalised too slowly, monetary policy risked adding to demand pressures.”

“Question was raised whether the assumptions behind the baseline were too benign.”

“Most measures of longer-term inflation expectations appeared to be still broadly anchored.”

“Risk that there would eventually be a deterioration in employment.”

“It was generally considered that stagflation was an unlikely outcome.”

“Inflationary pressures from re-opening in the tourism sector, which had been prominent in the may figures, were likely to continue in the coming months as tourism opened up more widely.”

“Necessary to avoid gradualism being seen as precluding interest rate steps in excess of 25 basis points..”

“Taking the indirect effects of energy prices out of the core inflation projection would result in a 2.0% projection for core inflation in 2024.”

“Necessary to look beyond negotiated wage growth and consider all elements affecting actual wage growth.”

“Gradualism should not necessarily be interpreted as slow action in small steps.”

“Remark was made that a normalisation of monetary policy according to the rate path currently priced by markets, which was already included in the technical assumptions, would not be sufficient to bring inflation back to 2% over the medium term.”

“A number of members expressed an initial preference for keeping the door open for a larger hike at the July meeting.”

“The implied “delay” in raising interest rates should, in principle, be offset by implementing a larger rate hike in July or by indicating more explicitly the possibility of a larger interest rate move later in the third quarter.”

Market reaction

The shared currency failed to benefit from the ECB’s publication and was last seen posting small daily gains at 1.0185.