Minimum two successive rate hikes needed for inflation projections to materialise

The accounts of the European Central Bank’s (ECB) June policy meeting revealed on Thursday that policymakers agreed that it was seen as essential to communicate that monetary policy had still more ground to cover.

Key takeaways as summarized by Reuters

“It was argued that market participants would be surprised by the upward revision of inflation.”

“A very broad consensus supported the 25 basis point rate increase.”

“Emphasis was put on the merit of sticking to a data-dependent, meeting-by-meeting approach.”

“A very broad consensus also prevailed in favour of confirming the end of reinvestments under the APP as of July.”

“The level of the peak deposit facility interest rate, as well as its duration, as embodied in the forward curve and reflected in the staff projections, could be judged as insufficient to bring inflation back to the 2% medium-term target.”

“Governing Council should stress that fiscal policy needed to be tightened.”

“Inflation was still projected to remain too high for too long, calling into question whether it was returning to target in a timely manner.”

“Upside risks to the inflation outlook were judged to still prevail.”

“For the inflation projections to materialise, the Governing Council had still, as a minimum, to deliver two successive interest rate increases in June and July.”

“Bringing inflation down from very high numbers to more moderate levels was easier than achieving a full return to 2%.”

“Longer-term market-based measures remained stubbornly high.”

“The view was held that the Governing Council could consider increasing interest rates beyond July, if necessary.”

Market reaction

EUR/USD trades at fresh 15-month highs on Thursday, clings to strong daily gains at around 1.1170 after the ECB’s publication.