ECB Policymakers Focused On September Meet To Discuss Rate Cut, Minutes Show
22 Agosto 2024 - 10:36AM
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Policymakers at the European Central Bank were keen to explore
the option of reducing interest rates in the monetary policy
meeting in September as they turned wary of the mixed bag of recent
economic data, minutes of the July 17-18 rate-setting session
showed Thursday.
The Governing Council, led by ECB President Christine Lagarde,
left the key interest rates for the euro area unchanged in July
after lowering them for the first time in five years in the
previous session. The main refinancing rate was held steady at 4.25
percent, the deposit facility rate at 3.75 percent and the marginal
lending rate at 4.50 percent.
Citing the mixed trends on the inflation front, the ECB minutes
said, "…these developments suggested that the last mile of
disinflation was more challenging and that the task of bringing
inflation down sustainably to the 2 percent target was not yet
assured, despite the significant progress made."
Policymakers chose to adopt a cautious stance in July as
Eurozone inflation was easing only gradually. They remained
concerned about the stickiness of services inflation and also
expressed worry over the deterioration in the short-term growth
outlook.
"Such a cautious approach was particularly warranted given the
prevailing uncertainties about the evolution of wages, profits,
productivity and services inflation," the minutes said.
Rate-setters were also of the view that a cautious approach
would allow them to respond by following a more gradual path of
reducing policy rates if inflation was more persistent than
currently foreseen.
"…a gradual attenuation of policy restriction was a balancing
act, as it was also important not to unduly harm the economy by
keeping rates at a restrictive level for too long," the minutes
said.
Stressing the need for no pre-commitment, ECB policymakers
agreed that it was "important to keep an eye on the real
economy."
"The September meeting was widely seen as a good time to
re-evaluate the level of monetary policy restriction," the minutes
said.
"That meeting should be approached with an open mind, which also
implied that data dependence was not equivalent to being overly
focused on specific, single data points."
A fresh set of ECB staff projections would be available in
September that could reveal the path inflation and growth is likely
to follow in the single currency bloc.
"The new stagflationary risk is not yet large enough to stop the
ECB from cutting rates again in September," ING economist Carsten
Brzeski said.
"However, it looks like a more complicated decision than markets
are currently pricing in."
Earlier on Thursday, data from the ECB showed that the rate of
increase in negotiated wages, a key component of inflation
trackers, slowed sharply to 3.6 percent from 4.7 percent in the
second quarter from the previous three months.
"The scale of the fall in negotiated wage inflation in Q2 was
largely due to one-off payments [to public sector employees] made
in Germany in March but not repeated in Q2," Capital Economics
economist Andrew Kenningham said.
"However, the underlying trend in wage inflation is clearly
downwards and is a good reason to expect the ECB to cut rates again
in September."
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