ECB Accounts: Main risk no longer of tightening monetary policy too early but too late

According to the accounts of the February European Central Bank monetary policy meeting, members of the Governing Council concurred that the latest figures suggested that inflation was likely to remain elevated for longer than expected, per Reuters.

Additional takeaways

"Despite the latest higher than expected inflation outcomes, the extent of possible revisions in the march projections, in particular for the medium-term outlook, remained an open issue."

"Incoming information was unlikely to lead to a substantially different or more benign inflation assessment but might instead imply another upward revision to the inflation outlook for the coming quarters."

"There was broad agreement that the situation had changed and that the inflation narrative needed to be adjusted."

"View was widely shared that convergence to the ECB's medium-term inflation target was no longer a distant prospect."

"Fulfilment of the forward guidance criteria more likely within a shorter time span."

"It remained an open question whether the outcome of the march projections would show inflation reaching the ECB's target durably within the projection horizon."

"Some argued that net asset purchases and negative policy rates were no longer seen as consistent with the incoming data."

"It was regarded as unlikely that inflation would drop below the target in the medium term."

"While downside risks to price stability had clearly receded, it was regarded as premature to draw conclusions."

"Governing Council should be careful not to introduce additional policy inertia (i.e. a slower pace of adjustment) when assessing the fulfilment of the forward guidance criteria."

"A scaling-back of monetary accommodation should commence."

"The main risk was no longer of tightening monetary policy too early but too late.."

Market reaction

The shared currency stays on the back foot after this publication and the EUR/USD pair was last seen trading at 1.1086, where it was down 0.3% on the day.