In the accounts of the ECB’s October 27-28 meeting, it’s noted, “since the monetary policy space was constrained by the effective lower bound on interest rates, the increase in the inflation rate was seen as an opportunity to re-anchor inflation expectations solidly at the Governing Council’s 2% target over the medium term.”

Also, “a continued accommodative monetary policy stance would also be in line with the Governing Council’s new monetary policy strategy, which called for policy to be persistent when interest rates were at the lower bound and explicitly allowed for inflation to moderately exceed the target for a transitory period”.

Meanwhile, “some of the upside risks to the September 2021 staff projections had materialised and that the recent uptick in inflation was expected to be more persistent than previously anticipated.”

Full accounts here.

ECB Executive Board member Fabio Panetta said, “the data suggest the current picture is dominated by a bout of ‘bad’ inflation generated outside the euro area, whereas we are far from seeing abnormally large domestic demand.” “Monetary policy should remain patient. A premature tightening would restrain spending before demand has returned to trend,” he added.

“We should not exacerbate the risk of supply shocks morphing into a demand shock and threatening the recovery by prematurely tightening monetary policy – or by passively tolerating an undesirable tightening in financing conditions,” Panetta warned.

Panetta also urged to continue with asset purchases. “First, the surge in the number of (COVID-19) infections and the renewed introduction of pandemic-related restrictions in some euro area countries mean that the pandemic is not over yet,” he said. “Second, an inappropriate, sharp reduction of purchases would be tantamount to a tightening of the policy stance.”

Separately, Governing Council member Robert Holzmann said, “the statements until now including of my colleagues on the Governing Council all suggest that net PEPP purchases will probably expire in March but that PEPP as such will not be done away with but perhaps be put in a waiting room.”

This will be in order to “save the advantages of flexibility in case they become necessary in the event of economic shocks, which are definitely possible, but we do not expect,” Holzmann said.