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Notizie economiche
04.04.2024

ECB monetary policy meeting accounts: The case for considering rate cuts was strengthening

European Central Bank released an account of its March 6-7 monetary policy meeting, at which its policymakers decided to leave the three key interest rates unchanged. It noted that:

- Three elements of the Governing Council’s reaction function - inflation outlook, underlying inflation dynamics, and strength of monetary policy transmission - supported an unchanged policy at the meeting;

- There had been further progress on all three elements, which warranted increased confidence that inflation was on track to reach the ECB’s target in a timely and sustainable manner;

- Fact that inflation had been slightly higher than anticipated in February was not seen as changing this general picture;

- Inflation was expected to continue its downward trend in the coming months;

- Inflation was expected to be back at target – or even slightly below target – in the medium term, and earlier than had been previously anticipated;

- Members agreed that most measures of underlying inflation had declined further since the last monetary policy meeting;

- Projections for core inflation had also been revised down. It was now expected to fall to 2% in 2026;

- Members generally agreed that monetary policy transmission was working well, with less uncertainty about the strength of transmission than when interest rates were still rising;

- Monetary policy was being transmitted robustly to financial markets, financing conditions, credit conditions and aggregate demand. This had helped to lower inflation but had also weighed on growth;

- Members expressed increased confidence that inflation was on track to decline sustainably to the 2% target in a timely manner;

- However, patience and caution were still needed, and more evidence and data were required for the Governing Council to be sufficiently confident that the task had been accomplished;

- A smooth and sustainable return of inflation to target, as implied by the projections, was also contingent on the monetary policy stance remaining restrictive enough for long enough;

- It was widely felt that, while there were clearly risks to the outlook, monetary policy was working and the disinflation process remained solid and robust.

- The view was taken that the risks of overshooting versus undershooting the ECB’s symmetric inflation target in the medium term were broadly balanced or becoming more balanced;

- Members underlined the need for policy to remain data-dependent and to continue to be based on the elements of the reaction function already communicated. While it was wise to await incoming data and evidence, the case for considering rate cuts was strengthening;

- It was highlighted that the Governing Council would have significantly more data and information by the June meeting, especially on wage dynamics. By contrast, the new information available in time for the April meeting would be much more limited;

- Questions remained about the sustainability of the disinflationary process, particularly in services and domestic inflation, on account of the uncertain outlook for wage growth, productivity growth and profit margins;

- To increase confidence that inflation would sustainably return to the ECB’s target, incoming data needed to confirm that important assumptions and predictions about these indicators in the March ECB staff projections would indeed hold true

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