TOP NEWS: ECB may pause tightening amid prolonged, deep recession

(Alliance News) - The European Central Bank said it might want to "pause" monetary tightening if there was a prolonged and deep recession, minutes from its October meeting revealed on Thursday.

In its October meeting, the central bank lifted its benchmark interest rates by 75 basis points, as expected, to keep a lid on inflation which it said remained "far too high".

The minutes revealed that a "very large majority" supported the 75 basis point hike, though a "few" members expressed a preference for a 50 basis point hike.

Members widely agreed that the outlook from the euro area economic activity had deteriorated since the September meeting, with it arguing that a technical recession was becoming the "baseline scenario and the most likely outcome".

A return of inflation to the ECB's 2% target was deemed unlikely without further decisive monetary policy action.

"Members underlined that the latest inflation outcomes were not at all reassuring. Data continued to come in above expectations. Concerns were expressed especially with regard to core inflation and the broader array of measures of underlying inflation, which appeared to be gradually increasing further and – with few exceptions – did not point to the stabilisation that had been hoped for and that had been embedded in the September staff projections," the minutes read.

Policymakers argued that in the event of a "shallow recession", the governing council should continue normalising and tightening monetary policy.

However, it said it might want to "pause" if there was a prolonged and deep recession, which "would be likely to curb inflation to a larger extent".

It was widely felt that, with a 75 basis point increase, the governing council would make "substantial progress" in withdrawing monetary policy accommodation rates.

It was also "clear" to members that rates would need to be raised further to reach a level that would deliver on the ECB's 2% medium-term target, the minutes said.

There was broad support for a meeting-by-meeting, data-dependent approach to monetary policy decisions.

By Heather Rydings; [e-mail]

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