MNI BRIEF: ECB Members Saw "Substantial Distance" To Peak Rate

Most European Central Bank Governing Council members saw “substantial distance to the prospective terminal rate” and that there was still value in frontloading hikes, official accounts of February’s monetary policy meeting show.

While the decision to hike by 50bps in February and signal the same move again at the next meeting was met with “broad agreement it was not unanimous, with some dovish members concerned rates "were coming closer to a level where caution was needed” to avoid overtightening. (See MNI SOURCES: 100bp Gap Between Hawk-Dove ECB Peak Rates)

Most on the council were concerned by the “likely persistence of underlying price pressures,” and a majority noted that expressing an intention to hike by another 50bps “was different from giving a commitment” and left the door open to a different given “substantial new information”.

Members also noted the gap between the inflation trajectory expected by the ECB and that implied by financial markets, leading them to question whether investors assigned too much weight to a decline in energy prices.

“Market participants appeared to be more optimistic and had substantially reassessed their inflation outlook,” according to the account.

Policymakers also noted uncertainty over the impact of China’s reopening on inflation and over how quickly lower energy prices would moderate underlying price pressures.