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ECB minutes say higher long yields may reduce future tightening needs

Officials said the September 25bp rate increase received broad support, while higher long-term rates, if orderly, were already helping support the ECB’s intended stance.

Reported · Written up by our desk · Central Banks

ECB minutes from the ECB’s September meeting indicate that rising long-term market yields could lessen how much additional policy tightening the central bank may need later, even after the Governing Council backed a 25bp rate increase, Action Forex reports.

Officials said long-end repricing could support the ECB’s intended monetary policy stance if it remains orderly, and that it may have implications for future appropriate policy rates.

The meeting account also described model estimates suggesting higher long-term rates could materially affect growth and inflation, shifting market tightening into a more central part of the ECB’s reaction function.

While the September hike was judged to be strongly supported by a more persistent energy shock and inflation expected to stay above target longer, officials also noted underlying inflation was relatively contained, wage growth was moderating, and there was little evidence of meaningful second-round effects.

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