ECB Minutes: Rates seen steady for extended period, but outlook fragile

The account of the February policy meeting of the ECB revealed a broadly stable but “fragile” outlook for the Eurozone economy. Policymakers maintained that growth remained resilient and inflation was still projected to hover around the 2% target, but emphasized that “significant risks and uncertainties” continued to cloud the outlook.

Members stressed the need to monitor not only major risks but also “subtle trends” that could gradually derail the projected inflation path. Particular attention will be paid to wage dynamics and services inflation, which remain key gauges of underlying price pressures. The upcoming March staff projections are expected to provide further clarity, especially following recent “downward surprises” in both inflation data and growth momentum.

Financial conditions and external developments were also highlighted as important factors. Policymakers said bank lending conditions, exchange rate movements, trade diversion effects, and consumption trends will all need to be closely watched to assess the “risks of a more pronounced or prolonged undershooting of the inflation target.”

Against this backdrop, the accounts suggested that interest rates could “remain at their current levels for an extended period” if incoming data does not significantly alter the baseline outlook. While the near-term dip in inflation has long been anticipated, some members warned that risks are increasingly tilted to the downside, reinforcing the need for vigilance to prevent a sustained undershooting of the ECB’s inflation target.

Full ECB meeting accounts here.