Some policymakers were unhappy with giving such a firm signal about the next rate hike because they thought underlying inflation might be turning around. "Reservations were expressed on the proposed communication of an intention for the March meeting," the ECB said in the accounts of its Feb. 1-2 meeting.
"It was noted that the short-term momentum in core inflation had also started to decline somewhat," the ECB said, adding that the proposals were eventually approved by a "broad" majority. Markets consider the March rate hike a done deal and have priced in a similar move for May given stubbornly high underlying inflation.
Fresh figures on Thursday showed that underlying inflation, which excludes volatile food and fuel prices, rose to 5.6% in February from 5.3% as the cost of services surged, confirming fears among conservative policymakers that price growth is becoming sticky above the ECB's 2% target.
Higher core inflation is likely to widen the debate on the 26-member Governing Council, with some, including Bundesbank chief Joachim Nagel, arguing for continued rapid rate hikes while others, such as Italy's Ignazio Visco, calling for more measured steps given the big moves already done.
Underlying inflation is now proving so stubborn that
investors have increased their bets for the peak ECB rate by
about 50 basis points in the past month and now see the deposit
rate exceeding 4% around the turn of the year.
Policymakers, however, appear united in the view that once
rates peak, they need to stay there for some time to ensure that
inflation does indeed come down.
(Reporting by Balazs Koranyi; Editing by Catherine Evans)
