ECB - European Central Bank

ECB - European Central Bank

25-NOV-2022


ECB MINUTES REVIEW: The accounts from the ECB's October meeting delivered the assessment that the outlook for euro area economic activity had deteriorated since the September monetary policy meeting. Furthermore, it was argued that a technical recession was becoming the baseline scenario and the most likely outcome. That said, it was decided that in view of the current inflation outlook, it was appropriate to continue normalising monetary policy by withdrawing accommodation. In terms of the magnitude of the hike, the rationale for opting for a 75bps move was based on the risk of a protracted period of excessively high inflation and the risk that this might add to medium-term price pressures. Additionally, it was argued that falling short of market expectations would imply an unwelcome loosening impulse. "A few members" expressed a preference for a 50bps increase given that such a move would be accompanied by a signal on the need for further future rate hikes and adjustments to TLTRO conditions. Furthermore, the 50bps camp argued that an overly aggressive pace of tightening could have repercussions for financial stability, economic activity and evenetually inflation. Ultimately, the 75bps majority prevailed, however, the argument for a step down to 50bps appears to be increasing ahead of the December meeting. Beyond October, the account noted that in the event of a shallow recession, the Governing Council should continue normalising and tightening monetary policy, whereas it might want to pause if there was a prolonged and deep recession, which would be likely to curb inflation to a larger extent. Finally, the view was expressed that monetary tightening would probably need to continue after the monetary policy stance had been normalised and moved into broadly neutral territory.