The European Central Bank (ECB) is considering the possibility of continuing to raise interest rates in order to bring inflation back to target, according to a recently published account of their last meeting. The ECB had already raised interest rates to their highest level in 22 years at the June meeting and predicted that inflation would remain above the 2 percent target until the end of 2025. The account also indicated that rate increases could potentially continue at the September meeting.
The ECB emphasized the need for further rate increases to bring inflation back to target in a timely manner. They also noted that market expectations for rate hikes in June and July, along with a 20 percent probability of an additional increase followed by cuts in 2024, may not be sufficient to achieve the desired inflation target. Despite the recent slowdown in the euro zone economy and falling inflation in June, core prices for services continue to rise, potentially leaving room for another rate hike in September.
However, the ECB has agreed to adopt a data-dependent approach and make decisions on rates on a meeting-by-meeting basis beyond July. The account revealed that there was initially a preference for a 50 basis point increase in interest rates, but also stated that the decision to stop replacing bonds bought through the Asset Purchase Program would need to be assessed at a later date.
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