European Central Bank policymakers retained the view that the current spike in inflation is being driven by temporary factors that are likely to ease in the course of this year, but some expressed concern that inflation could remain elevated, the minutes of the latest policy session showed Thursday.
“The projected convergence of inflation expectations towards 2 percent was to be welcomed although the outlook was surrounded by exceptionally high uncertainty,” the minutes, which the ECB calls “account”, of the December 15-16 Governing Council session showed.
“At the same time, it was cautioned that a “higher for longer” inflation scenario could not be ruled out.”
Policymakers also expressed concerns about any premature scaling back of monetary stimulus and asset purchases.
An argument was put forward that markets seemed to question the credibility of the ECB’s forward guidance, as they expected a first interest rate increase at a date that was difficult to reconcile with the conditions set by the Governing Council for such an increase.
Members widely agreed that substantial monetary policy support was still needed for inflation to stabilize at the Governing Council’s inflation target over the medium term, the minutes said.
Meanwhile, some argued that there was no need for a further loosening of the stance through additional asset purchases, given the measurable progress made in the convergence of medium-term inflation towards the target.
“All in all, the minutes of the ECB’s December meeting illustrate a more realistic debate on the several inflation scenarios, supporting the decision to scale back asset purchases in 2022,” ING economist Carsten Brzeski said.
The economist said the ECB’s gradual normalization would start with the current gradual reduction of asset purchases, and continue with an end to net purchases towards the end of 2022 and a first rate hike in early 2023.
In an interview to the France Inter Radio earlier on Thursday, ECB President Christine Lagarde rejected calls for a quicker rate hike citing the risk of hurting economic growth.
For comments and feedback contact: editorial@rttnews.com
Economic News
What parts of the world are seeing the best (and worst) economic performances lately? Click here to check out our Econ Scorecard and find out! See up-to-the-moment rankings for the best and worst performers in GDP, unemployment rate, inflation and much more.
