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The ECB moderated the pace of rate hikes to justify increases for longer

Date: October 4, 2023 Time: 18:52:56

The European Central Bank (ECB) 3.75% in exchange for using a tougher speech, which opens the door to justify additional increases in the future. This is clear from the minutes of its last monetary policy meeting, which took place in early May, just one day after the Federal Reserve. “The ECB communication should convey a clear directional bias to underline that, based on the current outlook, further increases would be justified to bring inflation back to target and to avoid a minor increase being misinterpreted as a sign of pause in the current cycle”, they point out.

In the cited document, they state that several members positioned themselves in favor of applying an increase of 50 points in view of the forecast that the CPI rate can be above the 2% target for at least four years, as well as the ” high risk” of de-anchoring inflation expectations. In fact, this caucus let the consequences of putting up with “too much rate” be less than those of doing “too little.” In his opinion, the financial market turmoil in March had been short-lived and “had not exerted a significant additional restrictive impulse.” Added to this was the resistance of activity in the euro zone, the reduction in the probability of recession and the greater pressure on prices, factors that made it difficult for the core rate to slow down.

However, the majority of this group did not mind sacrificing their decision and supporting raising the reference rate of money by 25 points, as mentioned by Philip R. Lane, the agency’s chief economist. “It was expected that this decision would strike the right balance between the need for new increases and the uncertainty about the speed and intensity of the transmission of monetary policy”, they point out while remarking that the decision was expected as “prudent”, for that the cost of larger increases outweighed the benefits, given the uncertainty and the perception that the horrible transmission of previous increases has not yet materialized.

On this basis, the central bank’s Governing Council has more leeway should the underlying rate – which excludes the price of fresh food and energy – persist or even strengthen over the summer. “Emphasized the desirability of maintaining a data-driven approach, meeting by meeting, in an unexpected environment and with rates approaching a potential landing zone,” they clarify. Precisely this Thursday, the inflation rate in the region of the single currency corresponding to the month of May was known, which moderated to 6.1%. This figure represents its lowest level since February 2022, at the height of the outbreak of the Russian invasion of Ukraine.

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.

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