Several ECB policymakers considered the decision to leave interest rates unchanged in April a narrow one and signaled they would have backed a rate increase had it been proposed, according to the latest meeting minutes. They cautioned that the energy-related supply shock was proving more persistent than previously assumed, heightening the risk of broader and more entrenched inflationary pressures. The war in the Middle East was also identified as a major source of uncertainty for both the inflation and growth outlooks.
Members highlighted the increasingly challenging trade-off for monetary policy, as slowing economic activity and deteriorating confidence coincided with rising inflation risks. Some officials pointed out that even with two rate hikes currently projected for this year, inflation was still forecast to remain slightly above the ECB’s target. Financial markets now anticipate a 25-basis-point increase in the ECB’s key rates on June 11, with at least one additional hike expected by year-end.
