The accounts of the April 29–30 meeting of the European Central Bank revealed that policymakers came significantly closer to raising interest rates than markets may have initially realized. While all members ultimately agreed to leave rates unchanged, the discussion showed growing concern that the Middle East energy shock is becoming more persistent and increasingly incompatible with a passive “looking through” approach. Several policymakers reportedly viewed the decision as a “close call,” and indicated they “would not have opposed raising rates at the current meeting had this been on the table.”
A central theme throughout the accounts was that the inflation outlook has materially deteriorated since March. Policymakers acknowledged that the conflict “would last longer than had been expected,” while the energy shock was proving “more persistent and its repercussions broadening.” Officials also noted that the latest oil market developments suggested inflation risks were moving away from the ECB’s baseline scenario. Importantly, the accounts highlighted growing concern that the combination of elevated energy prices, weakening confidence, and slowing growth was creating a classic negative supply shock and increasingly difficult stagflation trade-off for monetary policy.
The debate inside the Governing Council also showed that concerns over second-round inflation effects are intensifying rapidly. Several members warned that the risk of inflation expectations becoming unanchored had “re-emerged,” while pipeline price pressures were beginning to build again. Officials emphasized that firms may increasingly pass higher energy costs through to consumers, especially if the conflict drags on and supply-chain disruptions worsen. The accounts explicitly noted that it was becoming “increasingly unlikely” that a “looking through” approach without monetary tightening would remain appropriate.
Still, policymakers agreed that waiting until June remained the most prudent course because more information on wages, inflation expectations, and the duration of the conflict would become available by then. The ECB also acknowledged that a rapid diplomatic resolution and sharp fall in oil prices could still reverse inflation risks quickly.
Nevertheless, the overall tone of the accounts strongly reinforced expectations that June has effectively become the ECB’s critical tightening decision point. The key debate now increasingly appears to be not whether rates need to rise, but how quickly and how far the ECB may ultimately need to go.
