European Central Bank meeting minutes: Officials discussed the need for a “mildly restrictive” monetary policy

The meeting minutes indicate that European Central Bank officials discussed whether a "moderately restrictive" monetary policy might be necessary to ensure inflation returns to the 2% target level. The minutes from the European Central Bank’s policy meeting on July 22–23 show that some officials would have supported a rate hike last month, reasoning that "the probability of a situation where there is no reason for further rate hikes is very low." However, according to the minutes released on Thursday, since there remains considerable uncertainty about inflation persistence, "all members were willing to support the decision to keep policy rates unchanged." Currently, the eurozone inflation rate is hovering around 3%, well above the European Central Bank’s 2% target, while economic growth has also been stronger than expected. As a result, the market widely anticipates that, following June’s initial rate hike, the European Central Bank will increase rates again in two weeks’ time. The hawkish European Central Bank Executive Board member Isabel Schnabel told Bloomberg News this week that, as the protracted Middle East conflict and unexpectedly strong economic growth increase upside risks to inflation, rates must rise further. However, another dovish Executive Board member, Piero Cipollone, warned that the European Central Bank should not overtighten policy for fear of harming the economy. A key issue facing policymakers is whether the current 2.25% deposit rate needs to be raised to a level sufficient to restrain economic activity. Chief Economist Philip Lane previously stated that 2.5% is the upper bound of the neutral rate range.