Highlights
Minutes of the June meeting show increasing concern about persistent inflation, both in the Eurozone and abroad.
In terms of the real economy, the impact of monetary policy tightening was thought to be feeding more obviously through to the most interest rate sensitive sectors, notably housing and investment. However, it was noted that the labour market remained strong with the jobless rate at a historic low, in part due to labour hoarding. Recent wage increases had been broadly in line with the March staff projections but were expected to remain well above long-run averages in the June forecasts. While there was currently no evidence of significant second-round effects or a wage-price spiral, a note of warning was given not to underestimate the risk. Moreover, Governing Council (GC) members noted large increases in unit profits between the first quarter of 2022 and the fourth quarter of 2022. This applied to all sectors, ranging from around 15 percent in contact-intensive services to around 23 percent in agriculture.
Actual inflation news had been cautiously positive with the main core measures easing slightly but prices in services were still very sticky. In addition, the updated inflation forecasts had revised up the underlying projections significantly for both 2023 and 2024. Headline inflation was also seen higher than in March.
In view of the benign developments in Eurozone bond markets, it was generally, but not wholly, agreed to end the partial reinvestment of maturing assets held under the Asset purchase programme (APP) at the end of the month. Importantly, private investors had been able to smoothly absorb the large-scale public sector issuance since the beginning of the partial APP run-off. Some members wanted to defer the decision until later.
In conclusion, the argument was made that in view of the worsened inflation outlook a strong policy signal was needed, also considering that past decisions had not been decisive enough to bring inflation back to the 2 percent target more quickly. Consequently, a number of members again favoured raising key interest rates by 50 basis points rather than 25 basis points. However, looking ahead, it was also maintained that continuing on a gradual tightening path would allow the GC to monitor and assess the impact of past monetary policy decisions and ensure that financial conditions were adjusting in a way that was consistent with inflation moving back to target.
In terms of the real economy, the impact of monetary policy tightening was thought to be feeding more obviously through to the most interest rate sensitive sectors, notably housing and investment. However, it was noted that the labour market remained strong with the jobless rate at a historic low, in part due to labour hoarding. Recent wage increases had been broadly in line with the March staff projections but were expected to remain well above long-run averages in the June forecasts. While there was currently no evidence of significant second-round effects or a wage-price spiral, a note of warning was given not to underestimate the risk. Moreover, Governing Council (GC) members noted large increases in unit profits between the first quarter of 2022 and the fourth quarter of 2022. This applied to all sectors, ranging from around 15 percent in contact-intensive services to around 23 percent in agriculture.
Actual inflation news had been cautiously positive with the main core measures easing slightly but prices in services were still very sticky. In addition, the updated inflation forecasts had revised up the underlying projections significantly for both 2023 and 2024. Headline inflation was also seen higher than in March.
In view of the benign developments in Eurozone bond markets, it was generally, but not wholly, agreed to end the partial reinvestment of maturing assets held under the Asset purchase programme (APP) at the end of the month. Importantly, private investors had been able to smoothly absorb the large-scale public sector issuance since the beginning of the partial APP run-off. Some members wanted to defer the decision until later.
In conclusion, the argument was made that in view of the worsened inflation outlook a strong policy signal was needed, also considering that past decisions had not been decisive enough to bring inflation back to the 2 percent target more quickly. Consequently, a number of members again favoured raising key interest rates by 50 basis points rather than 25 basis points. However, looking ahead, it was also maintained that continuing on a gradual tightening path would allow the GC to monitor and assess the impact of past monetary policy decisions and ensure that financial conditions were adjusting in a way that was consistent with inflation moving back to target.
Definition
The European Central Bank (ECB) meets about every six weeks to determine the appropriate stance of monetary policy. The precise details of the policy deliberations are kept secret for thirty years but, since the 22nd January 2015 meeting, summary version of the minutes have been made available around four weeks after the discussions have taken place.
Description
The minutes provide a key insight into what the ECB is focusing upon when setting policy. As such they potentially can have a sizeable impact upon investor sentiment; especially at times when speculation is rife about a possible near-term change in official interest rates and/or non-conventional monetary policy instruments.
