ECB Accounts: Uncertainty surrounding the economic outlook had increased

The accounts of the European Central Bank's (ECB) October policy meeting revealed on Thursday that members “highlighted that the uncertainty surrounding the economic outlook had increased compared with at the time of the September”. 

According to the document members agreed that most indicators of underlying inflation appeared to have passed their peak and continued to decline, but they warned that domestic inflation was stubbornly high and longer-run inflation projections still seemed to be above ECB’s target. 

Key takeaways: 

Members highlighted that the uncertainty surrounding the economic outlook had increased compared with at the time of the September Governing Council meeting, also affecting the assessment of the appropriate monetary policy stance. 

it was maintained that, given the current outlook, it could be expected that the Governing Council would be able to bring inflation back to its 2% target by 2025. Although it was generally assumed that the “last mile” in bringing inflation back to target was the most difficult, it was argued that the Governing Council should be careful that its efforts to tame inflation did not eventually lead to an undershooting of the target.

Members agreed that the Governing Council should continue to stress its determination to set policy rates, through its future decisions, at sufficiently restrictive levels for as long as necessary to bring inflation back to target in a timely manner.

 Even if interest rates were left unchanged at the current meeting, the view was held that the Governing Council should be ready, on the basis of an ongoing assessment, for further interest rate hikes if necessary, even if this was not part of the current baseline scenario.

Market reaction

The Euro declined modestly following the release of the accounts. The EUR/USD dropped towards 1.0900, and the EUR/GBP remained under 0.8700.