Minutes from ECB’s meeting held on 13-14 September 2023 revealed that “a solid majority of members” supported for the 25bps rate hike, event though the decision was described as a “close call”.
These members were particularly concerned about the persistently high levels of inflation. They stressed the importance of the rate increase as it would “signal a strong determination” to bring inflation back to the target in a timely manner.” The emphasis was on ensuring that the duration to realign inflation to the 2% target “should not extend beyond 2025.”
A significant concern raised was the potential misinterpretation of ECB’s commitment if there was a decision to pause. The minutes noted that “erring on the side of pausing the first time the decision was a close call could risk being interpreted as a weakening of the ECB’s determination,” especially given the backdrop of both headline and core inflation rates were above 5%.
Furthermore, it was highlighted that any such pause in the rate-setting process might be misconstrued, fueling market speculations that “the tightening cycle was over.” Such speculation, the members argued, “increased the risk of a rebound in inflation.”
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