Several members of the Governing Council of the ECB preferred a rise of more than 25 basis points in July

MADRID, 7 Jul. (EUROPA PRESS) -

The Governing Council of the European Central Bank (ECB) agreed at its monetary policy meeting on June 8 and 9 to announce a 25 basis point rise in interest rates in July, although in the discussions prior to the consensus several members finally reached they were in favor of avoiding a previous commitment and thus leaving the door open to a rise of greater intensity.

According to the review of the Governing Council meeting published this Thursday by the ECB, "several members expressed an initial preference for keeping the door open for a larger increase at the July meeting", considering that the signal "should not be seen as an unconditional commitment" in order to have room to adjust the rate movement if the information available for the July meeting materially affects the medium-term inflation outlook.

However, the determination that the signal rate hike in July was 25 basis points responded to the probability that a moderate initial increase would encourage a continuous and orderly adjustment of the market in the midst of great uncertainty, while an initial increase higher and pre-emptive risk of triggering excessive adjustments in market interest rates, which could be counterproductive, especially if the upside risks do not materialize.

In this context, it was widely agreed that the Governing Council should be more specific at this point about its expectations for the September meeting and, in particular, open the door to an increase in the ECB's key interest rates by more than 25 basis points if the medium-term inflation outlook had not improved by that time.

On the other hand, during the conclave, attention was drawn to the widening of sovereign spreads in recent months, pointing out that the establishment of an anti-fragmentation tool was not at odds with the need to contain inflationary pressures.

"Indeed, addressing fragmentation could be seen as necessary to put the Governing Council in a better position to accelerate the normalization of monetary policy if the inflation outlook warrants it," they noted.

Likewise, during the meeting, a call was made to speed up and quickly compete the work regarding a possible new anti-fragmentation tool, since the risk of a split could intensify as the ECB advances with the normalization of its monetary policy.