European
Central Bank issued account of its September 11-12 monetary policy meeting, at which its policymakers decided to
lower the deposit facility rate by 25 basis points to 3.50 per cent and to cut
the rates on its main refinancing operations and marginal lending facility by
60 basis points each to 3.65 per cent and 3.90 per cent, respectively. It said
that:
- It was emphasized that incoming data implied a downward revision to
the euro area growth outlook relative to the previous projection round;
- It was underlined that the long-anticipated consumption-led recovery
in the euro area had so far not materialized;
- It was generally considered that a
recession in the euro area remained unlikely;
- Turning to the region’s labour market, its resilience was still
remarkable. The unemployment rate remained at a historical low amid continued
robust - albeit slowing - employment growth;
- With regard to price developments, members underlined that the recent
declines in inflation had delivered good news. The incoming data had bolstered
confidence that inflation would return to target by the end of 2025;
- Falling inflation, slowing wage growth and unit labour costs, as well
as higher costs being increasingly absorbed by profits, suggested that the
disinflationary process was on track;
- However, it was emphasized that
core inflation was very persistent;
- It was stressed that inflation had recently been declining somewhat
faster than expected, and the risk of undershooting the target was now becoming
non-negligible;
- Outlook for services inflation called for caution, as its stickiness
might be driven by several structural factors;
- Members stressed that wage
pressures were an important driver of the persistence of services inflation. While wage growth appeared to be
easing gradually, it remained high and bumpy;
- Forward-looking wage tracker was still on an upward trajectory, and it was argued that stronger than expected
wage pressures remained one of the major upside risks to inflation;
- Members assessed that inflation
could turn out higher than anticipated if wages or profits increased by more
than expected;
- Latest ECB staff projections had confirmed the inflation outlook from
the June projections;
- Inflation was on the right trajectory and broadly on track to return
to the target of 2% by the end of 2025, even if headline inflation was expected
to remain volatile for the remainder of 2024;
- Members generally agreed that monetary policy transmission from the
past tightening continued to dampen economic activity, even if it had likely
passed its peak;
- Financing conditions remained restrictive;
- Recent incoming data and the virtually unchanged staff projections had
increased members’ confidence that disinflation was proceeding steadily and
inflation was on track to return towards the 2% target in a sustainable and
timely manner;
- Despite some bumpy data expected
in the coming months, the big picture remained one of a continuing
disinflationary trend progressing at a firm pace and more or less to plan;
- It was also noted that the overall economic outlook for the euro area
was more concerning and the projected recovery was fragile;
- Economic activity remained subdued, with risks to economic growth
tilted to the downside and near-term risks to growth on the rise;
- Members emphasized that they
remained determined to ensure that inflation would return to the 2% medium-term
target in a timely manner and that they would keep policy rates sufficiently
restrictive for as long as necessary to achieve this aim;
- They would also continue to follow a data-dependent and
meeting-by-meeting approach to determining the appropriate level and duration
of restriction;
- There should be no pre-commitment to a particular rate path;
-It was better to maintain full
optionality for the period ahead to be free to respond to all of the incoming
data;
- It was underlined that the speed
at which the degree of restrictiveness should be reduced depended on the
evolution of incoming data;
- It was mentioned that a gradual
and cautious approach currently seemed appropriate because it was not fully
certain that the inflation problem was solved;
- It was therefore too early to
declare victory, also given the upward revisions in the quarterly projections for core
inflation and the recent upside surprises to services inflation