ECB Minutes (Apr): A number of members noted the decision was a close call and they would not have opposed raising rates, upside risks to inflation and downside risks to growth have intensified, weakness could persist well beyond the end of the conflict

RATE STANCE:

All members agreed to keep the three key ECB interest rates unchanged.
A number of members noted the decision was a close call and they would not have opposed raising rates at the current meeting had it been on the table.
A few stressed the option value of waiting had decreased and a "looking through" approach without any policy action was increasingly unlikely to be appropriate.

POLICY OUTLOOK:

It was agreed that communication should stress the Governing Council's firm commitment to ensuring inflation stabilises at the 2% target in the medium term.
It was argued that the situation shifted the primary focus to determining the most appropriate timing for a rate increase.
Members confirmed the data-dependent, meeting-by-meeting approach without pre-commitment to a particular rate path.
Most saw June as the point at which new projections, additional data and more clarity on the conflict's duration would allow a fuller assessment.
It was noted that even under those assumptions inflation was projected to remain marginally above target in the medium term, with the March projections not incorporating the subsequent rise in oil prices.

TRADE:

Export volumes, particularly to the United States, had declined from 2024 levels, while imports had risen, notably from China and South-East Asia.
Looking ahead, weaker foreign demand from the war would compound continued headwinds from US tariffs and strong Chinese competition.
Global trade had so far been only moderately affected, though survey indicators pointed to some weakening ahead.
Shipping was being rerouted via Cape of Good Hope, raising transportation costs, delivery times and the risk of supply bottlenecks.

INFLATION:

All members agreed upside risks to inflation had intensified since the March meeting.
It was argued the current shock had so far been more contained than in 2022 and was therefore less likely to trigger non-linear effects.
It was argued that pipeline price pressures had started to build, with pass-through of higher input costs to consumer prices potentially rapid and non-linear effects possible.
Members widely agreed incoming information had been broadly consistent with the previous inflation assessment.
Most measures of longer-term inflation expectations stood at around 2.00%, supporting medium-term stabilisation at target; near-term expectations had risen significantly.
Inflation fixings had moved up sharply for 2026 to levels of up to 3.60%; 2027 fixings were also above March levels, suggesting some indirect or second-round effects expected.
Several noted the distribution of inflation expectations had shifted to the right, including for core inflation, raising concerns about fragility after a prolonged period of high inflation.
Some cautioned that survey-based expectations should be interpreted carefully, as they appeared correlated with energy prices, limiting their signalling value.
Members concurred indicators of underlying inflation had changed little over recent months.
There was no evidence yet of second-round effects in wages; such effects, if any, were unlikely to materialise before 2027.
Risks were assessed as clearly skewed to the upside, reflected in a fattening of the right tail of the distribution.

LABOUR MARKET:

The labour market had remained largely resilient, with unemployment close to historical lows, though signs of easing tightness were emerging.
Wage tracker and surveys continued to indicate easing labour costs in 2026; reduced labour market tightness suggested this trend would continue.
Some surveys showed small upward revisions to expected wage growth, though confirmation in wage agreements was awaited; these would likely only reflect net outcomes from 2027.

GROWTH:

Members assessed downside risks to the growth outlook had intensified since March.
The European Commission's Economic Sentiment Indicator fell markedly in April, extending the March decline, with a particularly sharp drop in consumer confidence.
It was argued the euro area had displayed adaptability and resilience over recent years and there were reasons to expect this to continue, supported by defence spending, AI investment and employment growth.
It was argued that survey signals should be interpreted with caution as they might overstate the change in underlying fundamentals.
Some concern was expressed that the more global nature of the shock could widen the range of future growth outcomes, particularly to the downside.
Several noted persistently elevated uncertainty, surging energy costs, declining consumer confidence and tighter financing conditions were all weighing on the outlook.
Fiscal responses to the energy shock had been modest, below 0.10% of euro area GDP; the fiscal stance was likely to be slightly more expansionary in 2026 and slightly more contractionary in 2027.

FOREX:

The EUR/USD had rebounded to close to pre-war levels, appreciating roughly 1.50% bilaterally against the US dollar and 0.70% in nominal effective terms since the March meeting.
The euro's initial sharp depreciation had almost fully reversed, supported by improved global risk sentiment and expectations of ECB tightening relative to US policy.