The ECB
released an account of its December 13-14, 2023 monetary policy meeting, at which its policymakers decided
to keep its three key interest rates unchanged. It noted that:
- Members
widely acknowledged the weaker-than-expected growth in the short term;
- Since
inflation was coming down, the euro area economy was set to recover gradually
in 2024 owing to rising real incomes, stronger consumption and higher foreign
demand;
- Members
assessed the risks to economic growth as remaining tilted to the downside.
Growth could be lower if the effects of monetary policy turned out to be
stronger than expected;
- Members underlined
that the recent decline in inflation was good news, as it suggested a faster-than-anticipated disinflationary process... In the short run, however,
inflation was expected to pick up again in the coming months, mainly owing to
energy-related base effects;
- The latest
inflation numbers were therefore to be treated with caution, and it was too
early to be fully confident that inflation would return to target. More
data were needed to confirm the decline;
- Members
highlighted a number of risks to the medium-term inflation outlook, going in
both directions... Overall, risks were mostly seen as broadly balanced;
- The
remaining distance of inflation from the ECB’s target, the waning of
disinflationary supply-side tailwinds and, overall, still-high levels of
domestic inflation continued to call for maintaining a sufficiently restrictive
stance;
- Governing
Council's future decisions should ensure that the key ECB interest rates are set at sufficiently restrictive levels for as long as necessary;
- Governing
Council would continue to follow a data-dependent approach to determining the
appropriate level and duration of restriction;
- It was an
appropriate time to review the schedule of PEPP reinvestments;
- While full
reinvestments should be maintained in the first half of 2024, the PEPP portfolio
should be allowed to run off by EUR7.5 billion per month on average in the
second half, with reinvestments fully discontinued at the end of the year;
- Market
perceptions and narratives had shifted dramatically since the Governing
Council’s last monetary policy meeting... Concern was expressed that the sharp
market repricing threatened to loosen financial conditions excessively, which
could derail the disinflationary process;
- It was underlined that future wage dynamics remained highly uncertain,
with many new agreements to be negotiated early in 2024;
- Members agreed that indicators of underlying inflation appeared to
have passed their peak and continued to decline;
- It was argued that a significant part of the interest rate pass-through
was still pending, with the overall peak impact on activity seen in early 2024
and the bulk of the impact on inflation still expected over the next two years;
- Members expressed increased confidence that inflation would be brought
back towards the 2% target in 2025;
- It was stressed that there was no room for complacency and that it was
not the time for the Governing Council to lower its guard;
- Caution was warranted, as inflation would probably pick up in the near
term and there were continued uncertainties in relation to wages and underlying
inflation dynamics. This suggested that it was still too early to be
confident that the task had been accomplished;
- Confidence was expressed that the monetary policy stance continued to
be sufficiently restrictive