ECB minutes show unanimous agreement on upside inflation risks

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In the minutes of its September 9-10 policy meeting published on the 8th, the European Central Bank said all members agreed that inflation risks are tilted further to the upside, given extremely large swings in energy prices and widespread uncertainty. The ECB decided at that meeting to raise its policy rate by 0.25 percentage points, and with inflation already running at nearly twice its 2% target and likely to rise further on the back of high energy prices, the market expects another two to three rate hikes. The Governing Council was on alert for indirect and second-round effects as high energy costs feed through to other goods and services prices and to wages, but it also judged that a significant acceleration in wages or broad-based price increases has not clearly materialised at this point. On the economic outlook, it said risks remain tilted to the downside but are more balanced than before, and it noted arguments that even a slowdown in the momentum of the global artificial intelligence boom would weigh on the euro area's growth prospects, and that further rises in long-term interest rates could hurt growth. On the fiscal front, it said recent increases in government spending and rising long-term government bond yields could heighten vulnerabilities over time, stressing the importance of maintaining sound public finances and saying fiscal responses to the energy shock should be temporary and targeted.

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ECB minutes show unanimous upside inflation risks and market expects two to three more rate hikes, pushing the ECB policy rate higher.

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