FRANKFURT, Aug 27 (Reuters) – European Central Bank policymakers meeting last month thought they would probably need to raise interest rates once more to contain the fallout from the Iran war, the ECB’s account of the meeting showed on Thursday.
The ECB kept interest rates on hold at the July 22-23 meeting, having raised them for the first time in nearly three years in June to show its determination to stop a war-led rise in energy prices from taking root in the economy.
The ECB’s account of the meeting showed policymakers were already pencilling in a future rate increase, possibly as soon as September.
“While decisions remained data-dependent, another rate hike would likely be necessary unless the inflation outlook improved significantly,” the ECB said.
It added its official communication should not yet commit to a hike in September in case the inflation outlook improved.
Sources told Reuters earlier this week these doubts had since been cleared and, with inflation at nearly 3%, the Iran conflict still ongoing and the euro zone economy showing signs of resilience, ECB governors were ready to raise the policy rate again, to 2.50% from 2.25%, on September 9 to 10.
In the account, policymakers twice described their decision to hold rates steady in July as nothing more than a “pause” in rate hikes.
“It was important not to suggest that the pause in rate hikes at the current meeting meant that the end of the tightening cycle had been reached,” the ECB said.
ECB board member Isabel Schnabel said earlier this week data would determine how much further borrowing costs would need to rise.
The latest output data and business surveys showed the euro zone’s economy was doing better than expected, suggesting that the ECB’s effort to rein in price hikes was not putting undue strain on activity.
Data on Thursday showed banks were increasing their corporate lending at their fastest pace in more than three years at 4.4% in July.
(Reporting by Francesco Canepa; Editing by Andrew Heavens)
