Highlights
In contrast to the split vote at the September FOMC meeting, minutes of last month's ECB deliberations confirm a unanimous decision to cut the key deposit rate by 25 basis points. At the same time, there was general agreement on delivering the previously stated intention of narrowing the spread between it and the refi rate to 15 basis points. The overall tone was dovish.
Members agreed that recent economic developments had broadly confirmed the bank's baseline outlook, as reflected in the unchanged staff projections for headline inflation. This suggested that the disinflationary path was progressing well and inflation was broadly on track.The Governing Council's expectation that significant wage growth would be buffered by lower profits was also thought to have been confirmed in the recent data.
Nonetheless, the headline inflation rate was expected to remain volatile for the remainder of 2024 and the final phase of the move back to 2 percent was only expected to start in 2025. Moreover, the forecast profile rested on a number of assumptions meaning that prices would need to be carefully monitored to ensure that inflation would settle sustainably at the target in a timely manner. The risk of delays in reaching the target was seen as warranting some caution to avoid dialling back policy restriction prematurely. That said, it was also argued that the risk of the target being undershot further out was becoming more significant.
More generally, members agreed that policy transmission from earlier tightenings continued to dampen economic activity, even if it had likely passed its peak. Financing conditions remained restrictive and were reflected in weak credit dynamics, which had dampened consumption and investment.
Looking ahead, it was agreed that policy should continue follow a data-dependent and meeting-by-meeting approach meaning that there should be no pre-commitment to a particular rate path.
Members agreed that recent economic developments had broadly confirmed the bank's baseline outlook, as reflected in the unchanged staff projections for headline inflation. This suggested that the disinflationary path was progressing well and inflation was broadly on track.The Governing Council's expectation that significant wage growth would be buffered by lower profits was also thought to have been confirmed in the recent data.
Nonetheless, the headline inflation rate was expected to remain volatile for the remainder of 2024 and the final phase of the move back to 2 percent was only expected to start in 2025. Moreover, the forecast profile rested on a number of assumptions meaning that prices would need to be carefully monitored to ensure that inflation would settle sustainably at the target in a timely manner. The risk of delays in reaching the target was seen as warranting some caution to avoid dialling back policy restriction prematurely. That said, it was also argued that the risk of the target being undershot further out was becoming more significant.
More generally, members agreed that policy transmission from earlier tightenings continued to dampen economic activity, even if it had likely passed its peak. Financing conditions remained restrictive and were reflected in weak credit dynamics, which had dampened consumption and investment.
Looking ahead, it was agreed that policy should continue follow a data-dependent and meeting-by-meeting approach meaning that there should be no pre-commitment to a particular rate path.
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.
