The Governing Council of the European Central Bank (ECB) believes that the current economic slowdown will not bring inflation down sufficiently, thus justifying strong and immediate action on rates, according to the minutes of its September meeting.
This meeting of the guardians of the euro had led to a historic increase of 0.75 points in the three key rates of the monetary institute in order to cool the economy in the hope of slowing the surge in prices.
Because “the weakening of economic activity expected” at the end of 2022 and the beginning of 2023, in connection with the consequences of the war in Ukraine, “will not be sufficient to reduce inflation to a significant extent”, explain the minutes of the September 8 meeting.
The Governing Council therefore deemed it necessary to act “forcefully now” to avoid having to “raise interest rates more sharply later in the economic cycle, when the economy slows down”.
This analysis illustrates the delicate equation that the ECB must solve: bring inflation back to around the 2% target, “without unnecessarily aggravating the economic slowdown”.
The report also shows that the arguments of the “doves”, supporters of a more lax monetary policy, did not weigh heavily within a council dominated by the “hawks” determined to harden the monetary course in the face of a record inflation.
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The September minutes also leave no room for doubt about future rate hikes in the months to come.
“Broad consensus” emerged that even after a second straight rate hike, rates would “remain well below the neutral rate,” one that neither hurts nor helps the economy, according to the document. .
Observers are already predicting a further rise of 0.75 point or even 1.0 percentage point at the next meeting on October 27, especially as inflation in the euro zone reached the figure of 10.0% in September .