ECB Officials Were Open to April Rate Rise

ECB Officials Were Open to April Rate Rise

The European Central Bank (ECB) revealed that several rate setters were prepared to support a rate hike at their April meeting, reinforcing expectations for a move next month.

Key Details from Meeting Minutes

The ECB's governing council left the key interest rate unchanged at 2% last month, but the account of the meeting showed that some members would have backed an increase if it had been an option. "A number of members noted that the decision was a close call and that they would not have opposed raising rates at the current meeting had this been on the table," the ECB said.

Inflation and Energy Price Impact

Comments since the April meeting have strengthened investor expectations that the ECB will raise its key rate to 2.25% on June 11, responding to rising inflation and concerns that higher energy costs will lead to price increases for other goods and services. Some ECB officials argued that a 'looking through' approach without monetary policy action was increasingly inappropriate.

Economic Resilience and Risks

The eurozone economy continued to grow despite the energy price surge following Russia's invasion of Ukraine and higher U.S. tariffs, making it risky to rely on weaker demand to tame prices. Officials warned that if resilience persists, the expected drag on demand may be insufficient to eliminate the risk of inflation settling above target.

Lessons from 2022

The ECB wants to avoid repeating the 2022 mistake of leaving borrowing costs unchanged for too long as inflation picked up. However, officials acknowledge that the economy is weaker now than in 2022, when post-pandemic demand was strong.

If the ECB raises rates on June 11, it would be the first major central bank to do so since the Middle East conflict began. Neither the Fed nor the Bank of England is expected to move next month, while some investors expect the Bank of Japan to raise rates on June 16.