ECB Holds Rates Steady Despite Some Members Backing Second Hike

The European Central Bank (ECB) held its interest rates steady at its July meeting, but the decision was not as unanimous as it seemed. A recent account of the meeting reveals that some members would have backed a second rate hike in July.

The ECB had increased rates in June to combat an energy shock driven by the conflict in the Middle East. However, with inflation falling to 2.8% in June from 3.2% in May, some members saw no need for further tightening. Chief economist Philip Lane proposed leaving rates unchanged, arguing that the Council was 'well positioned' to wait for more evidence.

The account shows that while some members supported a pause, others saw the case for further tightening as already made. They argued that the June staff analysis had shown rates needing to rise under every scenario, including the milder one, and that 'the option value of waiting was therefore small.'

The decision to hold rates steady was only accepted on condition that communication stressed the Council's firm commitment to the 2% target and did not suggest the tightening cycle had ended. The account states that 'another rate hike would likely be necessary unless the inflation outlook improved significantly,' while also stressing that the Council was not pre-committed to moving in September.