FRANKFURT, Oct 6 — The European Central Bank does not believe slowing economic activity will be enough to tame inflation alone, meaning “forceful” interest rate hikes were still needed, according to minutes published today.
The ECB lifted rates by a historic 0.75 percentage points at its last meeting in September to pull down eurozone consumer prices, which have hit an all-time high.
Higher prices — particularly of energy following Russia’s invasion of Ukraine — are expected to slow economic activity and potentially trigger a recession, which could naturally lead to inflation dropping.
But the ECB’s governing council believes “the expected weakening in economic activity would not be sufficient to reduce inflation to a significant extent”, according to minutes of its September 8 meeting.
The slowdown “would not in itself bring projected inflation back to (the ECB’s two-per cent) target,” they said.
The 25-member council faced a “difficult challenge of ensuring that inflation returned to target in a timely manner without unnecessarily exacerbating an economic downturn”, the notes showed.
But they argued growth concerns should not stop a “needed forceful increase in interest rates”.
The ECB believes that “acting forcefully now could avoid the need to increase interest rates more sharply later in the economic cycle when the economy was slowing down”, according to the minutes.
ECB president Christine Lagarde has already signalled the Frankfurt-based institution will continue to hike rates to bring inflation down in the 19-member eurozone.
The minutes showed that a “very large number of members” of the governing council called for a 75-basis-point hike, although some initially preferred a 50-basis-point increase.
Andrew Kenningham, of Capital Economics, said the minutes “suggest that the ECB would rather tighten policy aggressively before a recession takes hold”, and predicted a 100-basis-point hike at its next meeting in late October. — AFP
