ECB accounts shows inflation worry; urgency of policy action

　　div classBodysc17zpet90 cdBBJodivpFRANKFURT Reuters – European Central Bank policymakers expressed widespread concern about the spread of inflation and made the case for continued policy normalisation, the accounts of their April 14 meeting showed on Thursday.p

　　pWith inflation soaring to a record high 7.4, the ECB confirmed plans at the meeting to end a bond purchase scheme in the third quarter but maintained an otherwise noncommittal tone, avoiding any other pledges, including on interest rates, which remain deeply negative.pdivdivdiv classBodysc17zpet90 cdBBJodiv

　　p“Members widely expressed concern over the high inflation numbers,” the ECB said in the accounts of the meeting. “Members widely shared the view that the gradual normalisation of the monetary policy stance… should be continued.”p

　　p“Some members viewed it as important to act without undue delay,” the ECB added. “A risk was also seen that, if the Governing Council did not signal a faster policy normalisation process, inflation expectations would continue to rise.”p

　　pSentiment among policymakers has shifted substantially in the five weeks since the meeting, making the accounts largely backward looking.p

　　pNearly all who have spoken publicly are now backing an interest rate increase in July, the ECBs first hike in over a decade, and many are pushing to lift its deposit rate into positive territory this year. It is currently at minus 0.5.p

　　pTheir concern is that inflation is not only high, it is becoming broad based, raising the risk that rapid price growth becomes entrenched well above the ECBs 2 inflation target.p

　　pIndeed, underlying inflation, which filters out volatile food and fuel prices is almost twice the ECBs target and the vast majority of private and public forecasts put overall price growth well above target even in 2023.p

　　pIn the next move, the ECB will decide at its June 9 meeting to end bond purchases around midyear and will likely provide unmistakable hints that a rate hike will follow at the July meeting.p

　　pSome policymakers would prefer to raise rates in June but the bank has promised that bond buys would not end before the third quarter and interest rates would only rise thereafter.p

　　pThis schedule has essentially tied the ECBs hands, making July 21 the first possible date for a rate hike without breaking the guidance.p

　　pMarkets currently price 107 basis points of rate hikes for the rest of the year, or a little more than a quarter percent increase at each policy meeting from July onwards.p

　　p

　　pp Reporting by Balazs Koranyi Editing by Toby Choprap

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