OPINION
Market Rating Before FOMC MeetingJan 31
ECB Minutes: More Steps Should Be Taken Toward Policy Normalization
The minutes of the critical monetary policy meeting of the European Central Bank (ECB) on 20 – 21 July were published today.
Following an 11-year hiatus, the bank increased interest rates at the meeting by 50 basis points. The refinancing operation interest rate was lowered to 0.5%, the deposit interest rate to 0.00%, and the marginal funding rate was raised to 0.75%.
Looking at the meeting minutes; It has been underlined that inflation has been consistently higher than expected in the past months and that some upside risks have materialized above anticipated. It was emphasized that the recent rise in energy prices has weakened the economic outlook.
It was pointed out in the minutes that medium-term risks had increased. It was stated that the bank's monetary policy did not provide effective support in the face of a series of supply shocks in the economy and that measures by the bank's duty were required. It has also been noted that the members agreed that additional steps toward monetary policy normalization are necessary.
According to the minutes, inflationary pressures have increased, particularly in the short term, since the June meeting. Furthermore, the risk of unpredictability in long-term inflation expectations was emphasized, and the majority of members agreed that a 50 basis point rate hike was appropriate.
While the members unanimously supported the establishment of a new bond purchasing program (TPI) to support the effective transfer of monetary policy, they predicted that this is necessary to ensure and maintain price stability.
Finally, it was reaffirmed that the Board of Directors intends to reinvest the principal payments of past-due securities purchased until the end of 2024 about the Pandemic Urgent Asset Purchase (PEPP). According to a statement, the PEPP rollout in the future will be directed to intervene in the suitable monetary policy stance.
Following an 11-year hiatus, the bank increased interest rates at the meeting by 50 basis points. The refinancing operation interest rate was lowered to 0.5%, the deposit interest rate to 0.00%, and the marginal funding rate was raised to 0.75%.
Looking at the meeting minutes; It has been underlined that inflation has been consistently higher than expected in the past months and that some upside risks have materialized above anticipated. It was emphasized that the recent rise in energy prices has weakened the economic outlook.
It was pointed out in the minutes that medium-term risks had increased. It was stated that the bank's monetary policy did not provide effective support in the face of a series of supply shocks in the economy and that measures by the bank's duty were required. It has also been noted that the members agreed that additional steps toward monetary policy normalization are necessary.
According to the minutes, inflationary pressures have increased, particularly in the short term, since the June meeting. Furthermore, the risk of unpredictability in long-term inflation expectations was emphasized, and the majority of members agreed that a 50 basis point rate hike was appropriate.
While the members unanimously supported the establishment of a new bond purchasing program (TPI) to support the effective transfer of monetary policy, they predicted that this is necessary to ensure and maintain price stability.
Finally, it was reaffirmed that the Board of Directors intends to reinvest the principal payments of past-due securities purchased until the end of 2024 about the Pandemic Urgent Asset Purchase (PEPP). According to a statement, the PEPP rollout in the future will be directed to intervene in the suitable monetary policy stance.
