According To ECB Accounts, Inflation Concerns Rationalize Additional Rate Hikes

Policymakers at the European Central Bank feared that inflation was becoming entrenched at their most recent policy meeting, so rates would need to rise further, according to meeting accounts released on Thursday.

The ECB raised interest rates by 75 basis points to 1.5% at the meeting to combat sky-high inflation, bringing its total hikes since July to 200 basis points, the fastest policy tightening on record.

Policymakers also put the reduction of the bank’s 9 trillion euro balance sheet on the agenda, bringing the bank closer to unwinding a decade of government debt purchases aimed at rekindling inflation that had been falling short of the ECB’s target.

“It was also clear that rates would need to be raised further to reach a level that would deliver on the ECB’s 2% medium-term target,” the accounts of the meeting showed.

According to the ECB, some policymakers believe that “monetary tightening would almost certainly need to continue after the monetary policy stance had been normalised and moved into broadly neutral territory.”

The 75-basis-point rate hike was widely supported, though a “few” policymakers preferred a smaller, 50-basis-point increase.

While the ECB has stated that it will continue to raise interest rates, markets are now expecting a more modest 50 basis point increase on December 15 after a number of policymakers suggested that a slowdown after two 75 basis point increases was appropriate.

A possible compromise would be to combine a smaller rate hike with an earlier start in the reduction of the portfolio of bonds purchased under the ECB’s 3.3 trillion-euro Asset Purchase Programme, a process known as quantitative tightening.

Even if the ECB slows, markets expect the deposit rate to double to 3% next year, as inflation, which is currently at 10.6%, will take years, possibly until 2025, to return to the ECB’s 2% target.

(Adapted from


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