With rates near peak, ECB focus shifts to growth, bond spreads

investing.com:

By Balazs Koranyi and Francesco Canepa

MARRAKECH/FRANKFURT (Reuters) -European Central Bank policymakers expressed cautious optimism on Thursday that inflation was on its way back to 2% even without more rate hikes and raised pressure on governments to maintain the sort of fiscal discipline needed for a soft landing of the economy.

The ECB raised its key interest rate to a record high of 4.0% last month but signalled that its 10th hike in a 14-month-long effort to bring down inflation may be its last, at least for now, as the economy was slowing and could even dip into recession.

Joining an already long list of policymakers suggesting steady rates for now, French central bank chief Francois Villeroy de Galhau and his Greek counterpart, Yannis Stournaras both planed down the need for further tightening, arguing that policy was already in a setting that could lower inflation.

Those comments came just as the accounts of the ECB's last meeting, published on Thursday, showed that even the last hike was a close call, with tactical considerations tipping the scale towards the increase.

«Erring on the side of pausing the first time the decision was a close call could risk being interpreted as a weakening of the ECB’s determination, especially at a time when headline and core inflation were above 5%,» the ECB said.

While a solid majority backed the increase, there was also a shift in the perception of risk with policymakers seeing risks to inflation more balanced and they also saw a greater balance between the cost of tightening too much and too little.

The ECB's models also suggested, according to the accounts, that a deposit rate in the region of 3.75% to 4.00% could bring inflation back to 2%, provided the ECB held this level