The European Central Bank (ECB) exercised caution at its September meeting regarding the pace of easing its interest rates, despite a recent drop in inflation making a cut likely in October, according to the meeting’s minutes published on Thursday.
The deposit rate, a key reference, was reduced in September by 25 basis points to 3.50%, a level still considered “restrictive” for controlling inflation by central bankers.
"Going forward, it was emphasised that the pace at which the degree of restrictiveness should be reduced depended on incoming data," the minutes stated.
The ECB noted that dependence on indicators like inflation and PMI indices does not mean reliance on a single figure, and that "no automatic weight could be given to short-term inflation developments."
In the minutes, ECB officials expressed concern about service sector inflation, which had been persistently high since November last year.
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However, recent data surprised analysts and appeared to change the outlook. Eurozone inflation continued to slow, falling to 1.8% in September, dipping below 2% for the first time in over three years. Core inflation, which excludes volatile energy and food prices, also declined to 2.7% year-on-year, according to Eurostat.
Price pressures in the service sector have particularly eased, another positive development.
The September minutes also reflect the ECB's growing concern about growth prospects, which supports a quicker easing of monetary policy.
ECB President Christine Lagarde recently stated that recent price developments boost confidence in inflation returning to target, which will be considered at the October meeting.
These remarks lead most observers to anticipate another rate cut next Thursday when the ECB meets in Slovenia.
