The European Central Bank (ECB) wrapped up a decisive policy gathering last September with 25 council members voting in favor of a notable rise in policy rates. President Christine Lagarde called the move a unanimous decision, lifting the deposit rate by 0.75 percentage points to 1.25 percent. Yet even in the face of broad agreement, several members suggested a smaller 0.5 point increase might have been considered if economic signals had pointed more strongly to a rapid slowdown in activity.
The minutes reveal that the monetary authority is tightening its stance after a stretch of calls for a stronger response to inflation. Earlier in July, the ECB delivered a 0.5 point hike, marking the first such rise in 11 years and exceeding market expectations from the June gathering. A subset of council members preferred maintaining a 0.25 point pace that the ECB had previously signaled, underscoring a debate about how aggressively to move.
Rising inflation appears to have shifted the balance within the ECB board. Since Mario Draghi took the presidency in 2011, many directors favored a flexible interpretation of the ECB mandate, with a majority leaning toward a broad approach that weighs the economic environment alongside price stability. But during July and September, hawks who advocate faster tightening gained influence on the policy path.
Differences
Those who advocated a 0.5 point increase argued that recession risks were becoming more plausible and could help curb inflationary pressures. They warned that an overly aggressive response could hamper growth without delivering meaningful near-term relief on prices. They pointed to supply shocks, such as energy price surges, as drivers of price levels that were not fully explained by the path of interest rates.
In contrast, some council members stressed that inflation was being fed largely by nonmonetary factors and that the effectiveness of a sharp rate rise in the short run could be limited. They emphasized that inflation expectations were still anchored close to the ECB’s 2% target, suggesting a slower normalization might be warranted to avoid harming the broader economy.
Among the outside voices, the governor of a major national central bank indicated, cautiously, that rates might need to move into a higher range in the coming year, perhaps between 2.25% and 2.5% at an expected peak. He warned that this outlook was not a formal forecast or a commitment by the ECB, but an analytic exercise meant to illustrate possible paths under different scenarios. He is regarded as one of the more dovish members on the council, yet his remarks reflected the ongoing debate about the appropriate balance of risks and policy stance.
Ultimately, the September decision represented a clear signal that a strong policy response would be maintained. The 0.75 point increase was viewed as a necessary adjustment given that inflation remained stubbornly high. The central bank argued that the ongoing normalization of monetary policy would proceed as inflation pressures evolve, with policy gradually tightening as medium-term forecasts continued to shift higher. The minutes underscored a belief that inflation could require a quicker retreat if price pressures persisted, even as a measured approach aimed to limit unnecessary disruption to growth.