ECB Minutes: All members supported keeping the three key ECB rates unchanged

RATE STANCE:

• All members supported keeping the three key ECB interest rates unchanged.
• Members emphasised their collective determination to ensure inflation stabilised at the 2% target in the medium term.
• It was agreed that the current meeting’s decision to hold rates should not be seen as diminishing readiness to act if required.

POLICY OUTLOOK:

• Members agreed the baseline, adverse and severe scenarios should all be published.
• It was agreed ECB staff would regularly update the scenario analysis with new information.
• Members reiterated future rate decisions would be based on the inflation outlook, underlying inflation and transmission strength.
• Many stressed there was too little evidence to reach firm judgements on the shock’s medium-term implications.
• Many saw the option value of waiting as high, given exceptional uncertainty and a broadly neutral stance.
• Many argued the meeting-by-meeting, data-dependent approach provided sufficient flexibility to react quickly if needed.
• Many stressed policy should remain focused on the medium term, not the first-round inflation spike.
• Many argued policy should look through a short-lived supply shock but respond forcefully if inflation risked staying away from target.
• Several said higher-frequency indicators on expectations, price-setting, demand, labour markets, supply chains and financial conditions would be crucial.
• Several argued scenario analysis would be essential for judging whether the baseline or a more adverse path was crystallising.
• Several stressed action should not be taken prematurely on adverse or severe scenarios without corroborating incoming data.
• Several argued the next meeting would provide more information on the conflict, energy prices, fiscal responses and early warning indicators.
• Some stressed the ECB should communicate calmly, clearly and without overreacting to rapidly changing news.

TRADE:

• Several highlighted continuing uncertainty over the future evolution of US tariffs.
• Several argued weaker US growth could reduce demand for euro area exports.
• A few said latest trade deals with India and Australia could support growth over the longer term.
• Members assessed additional frictions in international trade could disrupt supply chains, reduce exports and weaken consumption and investment.
• Some argued inflation could be lower if tariffs reduced demand for euro area exports more than expected.
• Some said countries with overcapacity increasing exports to the euro area further could lower inflation.
• Some argued ongoing trade tensions could fragment supply chains, restrict critical raw materials and tighten capacity constraints.
• A few said cheaper Chinese goods could still exert relative-price disinflationary pressure in the euro area.

INFLATION:

• All members viewed risks around the inflation outlook as tilted to the upside relative to the baseline, especially in the near term.
• Members concurred that before the energy shock, underlying inflation indicators remained consistent with the 2% medium-term target.
• Members concurred the war-driven rise in energy prices would push inflation materially above 2% in the near term.
• Most said medium to longer-term inflation expectations remained well anchored, with longer-term measures around 2%.
• Many welcomed staff’s later cut-off date, seeing the baseline inflation projections as more meaningful and realistic.
• Many argued a prolonged war could raise energy prices further and for longer, lifting inflation beyond the baseline.
• Several stressed natural gas posed particular inflation risks given low European storage, LNG market pressures and links to electricity and fertiliser prices.
• Several argued indirect and second-round effects could be stronger than assumed in the baseline.
• Several warned food prices could come under pressure from higher energy and fertiliser costs, lifting household inflation perceptions.
• Several argued inflation expectations could rise quickly, with non-linearities in price and wage-setting.
• Several said workers might seek faster compensation for lost purchasing power, raising wage risks.
• Several said firms might raise prices more quickly, with some large companies already announcing increases.
• Several argued pass-through from energy to goods inflation could be stronger than assumed.
• Several warned prospective fiscal support measures could add upward pressure to inflation.
• Some argued large second-round effects should not be taken for granted.
• Some said slower wage growth, a cooling labour market and weaker growth suggested limited wage pass-through.
• Some cited analysis finding very limited pass-through from energy shocks to wages.
• Some argued the terms-of-trade shock acted like an external tax to be absorbed by workers, firms and governments.
• Members assessed inflation could be lower if the war proved more short-lived or second-round effects were weaker than expected.
• Some argued broader supply chain disruption could lift food prices, freight rates and delivery times, intensifying inflationary pressure.
• Some said tight labour markets and robust pre-war global growth could amplify second-round effects.
• Some argued weaker external and domestic demand could instead limit second-round effects and lower inflation.
• Several argued memories of 2022 could make households and firms more sensitive to current price rises, speeding second-round effects.

LABOUR MARKET:

• Members said the labour market remained resilient, though there were signs of cooling labour demand.
• Some argued firms might respond to weaker demand by reducing workforces rather than hoarding labour.
• Some said weaker labour demand could result in softer wage growth and limit second-round effects.
• Some argued low unemployment could strengthen workers’ bargaining power and raise wage claims more quickly.
• Members concurred wage growth had slowed, while forward-looking indicators suggested labour costs would ease further in 2026.
• Several said labour market tightness should be monitored closely to gauge workers’ bargaining power in wage negotiations.
• Several argued upcoming wage agreements would be important for judging whether higher inflation or weaker growth was dominating wage-setting.

GROWTH:

• Members broadly agreed with the assessment of solid pre-war growth momentum and resilience.
• Members assessed risks to the growth outlook were tilted to the downside, especially in the near term.
• Many said the war was disrupting commodity markets, weighing on real incomes and confidence, and would dampen consumption and investment.
• Many described the shock as a negative supply shock that would push up inflation and weaken activity.
• Many argued the economy’s favourable starting position should cushion the impact.
• Many noted low unemployment, solid private sector balance sheets, and defence and infrastructure spending should underpin growth.
• Many said the baseline growth projection had been revised down, especially for 2026.
• Many still saw private consumption as the main medium-term growth driver, with investment also continuing to grow.
• Several argued the baseline growth projection could still be too benign.

FOREX:

• The war had led to a depreciation of the euro against the US dollar.
• Members linked the euro’s depreciation to the energy shock as an adverse terms-of-trade shock and to weaker global risk sentiment.
• Several argued euro depreciation could add upward pressure to euro area inflation because earlier euro strength had supported disinflation.