ECB kept Sept rate hike on the table at July meeting: accounts

European Central Bank policymakers kept a September rate hike on the table when they raised interest rates in July, although some of them argued that another move would be deemed unnecessary when new economic projections were released, the accounts of the meeting showed on Thursday.

The ECB has lifted rates from minus 0.5% to 3.75% in just over a year to fight a surge in inflation. Arguments for a pause are now on the rise, especially as economic growth is visibly slowing, underperforming the ECB’s already benign expectations.

“A further rate hike in September would be necessary if there was no convincing evidence that the effect of the cumulative tightening was strong enough to bring underlying inflation down,” the accounts of the July 26-27 meeting showed.

August inflation data on Thursday showed underlying price growth easing to 5.3% from 5.5%, a modest decrease that is still likely to add to arguments that price pressures are waning.

The accounts acknowledged that underlying inflation could be expected to remain high for an extended period, even if growth was slowing.

But some policymakers also argued that a September rate hike would not be needed because policy had already been tightened enough to bring down inflation in the years ahead.

“It was argued that it was quite probable that the September ECB staff projections would revise the inflation path sufficiently downwards towards 2%, without the need for another interest rate hike in September,” the accounts showed.

Others cautioned against putting too much emphasis on the September meeting or the new projections, and argued that the bank should instead adopt a risk management approach for the coming meetings, given the uncertainty.

Nevertheless, the accounts appeared to show a more balanced debate than at previous meetings and policymakers were in broad agreement that they would go into the Sept. 14 meeting with an “open mind” – a change from recent months, when the ECB essentially committed to rate hikes well in advance.