The European Central Bank advocates a “gradual” tightening of monetary policy but does not rule out increases in tranches above 25 basis points if necessary, according to the minutes of the last meeting published on Thursday.
“Gradualism should not necessarily be interpreted as slow action in small steps,” the euro guardians agreed at their June 9 meeting, the minutes of which the Frankfurt institution has released.
This meeting marked a turning point in the accommodative policy pursued by the ECB in recent years: the central bank of the euro zone announced a rise in key rates of 25 basis points in July and other increases in the following months, in order to to combat record inflation.
This move was expected as most major central banks have already started raising rates.
Discussions at the meeting therefore focused in particular on the pace of monetary policy tightening.
‘A number’ of members of the Board of Governors wanted to ‘keep the door open for a bigger hike’ at the next meeting on July 20, according to the minutes of exchanges between officials.
These proponents of more proactive action against inflation – ‘the hawks’ – pleaded for the Governing Council to ‘retain the discretionary power to adjust the extent of the movement in key rates’ if the outlook for inflation medium term deteriorate again between now and the July 20 meeting.
A compromise has finally been found for the ECB to launch its rate hike cycle with a 25 basis point hike, ‘a first proportionate step’ because it is a ‘step that needs to be carefully prepared and explained ‘, according to the report.
On reading these minutes, “the basic scenario of an increase in key ECB rates of 25 basis points in July and an additional 50 basis points in September remains in place”, notes Carsten Brzeski, analyst at ING .
‘However, with the risk of a looming Eurozone recession and a slowing US economy…some hawks could still press for a 50 basis point rate hike in July’, he continues.
‘The euro approaching parity against the US dollar could be another reason for the hawks to push for surprise,’ said the analyst.
/ATS