(Refiles to add dropped word 'heading' in lead)
FRANKFURT (Reuters) -European Central Bank policymakers meeting last month appeared confident that inflation was heading back to target but saw plenty of risks that still warranted steady policy and high borrowing costs, the accounts of the December policy meeting showed on Thursday.
The ECB left interest rates unchanged at the meeting and made clear that no further hikes were coming. But it also said it was way too early to discuss policy easing, even as markets were increasingly betting on the start of a reversal in early spring.
«There was no room for complacency and that it was not the time for the Governing Council to lower its guard,» the ECB said in the accounts of the Dec 13-14 meeting. «A need was seen for continued vigilance and patience, and for the maintenance of a restrictive stance for some time.»
«It was still too early to be confident that the task had been accomplished,» the bank added after policymakers agreed unanimously to keep rates steady.
Policymakers also concluded that they needed to push back against market expectations for rapid policy easing, even if there was unusual uncertainty around both the inflation and economic growth outlook.
«It was widely regarded as important not to accommodate market expectations in the post-meeting communication,» the ECB said. «Some humility was advised with respect to judging market expectations given prevailing uncertainties.»
Investors now expect 135 basis points of rate cuts this year, a big change compared with the start of the week when 150 basis points were priced in. The big move came after a host of policymakers said markets were getting ahead of themselves.
Inflation rose to 2.9% last month, as the ECB had
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