ECB officials discussed need for ‘mildly restrictive’ policy
Such a policy could be needed to ensure inflation returns to the 2% target
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[STUTTGART) European Central Bank officials discussed whether “mildly restrictive” monetary policy could be needed to ensure inflation returns to the 2 per cent target, according to a summary of the meeting.
Some would have supported an interest-rate increase last month, citing “the low likelihood of a situation in which a further rate hike would not be warranted,” the account of the July 22-23 gathering showed.
But with uncertainty high about the stickiness about inflation, “all members were willing to rally behind the decision to keep policy rates unchanged,” according to the summary, which was published on Thursday (Aug 27).
With euro-area inflation hovering around 3 per cent, far exceeding the ECB’s 2 per cent target, and economic growth stronger than expected, officials are widely expected to raise borrowing costs again in two weeks following June’s initial increase.
Hawkish Executive Board member Isabel Schnabel told Bloomberg this week that rates must rise further as the lengthy conflict in the Middle East and surprisingly robust growth fuel upside inflation risks.
Her dovish colleague Piero Cipollone, however, warned that the ECB shouldn’t tighten policy excessively to avoid harming the economy.
A key question for policymakers is whether the deposit rate, currently at 2.25 per cent, will need to be lifted to levels where borrowing costs dampen economic activity. Chief economist Philip Lane has indicated that 2.5 per cent is the upper limit of the neutral range. BLOOMBERG
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