After hiking its deposit rate to 4% in September, the governing council said future monetary policy decisions will ensure that its policy rates are set at “sufficiently restrictive levels for as long as necessary”.

“The governing council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner,” it said. 

“Based on its current assessment, the governing council considers that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal.”

ECB approaches end of hiking cycle with 25bps rise

The central bank said that recent data had “broadly confirmed” its previous medium-term inflation outlook and that, despite energy effects, a declining trend in underlying inflation had continued.

“The ECB sounds confident about the progress being made in lowering inflation, as well it might given the steep fall in three-month inflation momentum,” said Charles Seville, senior director in Fitch Ratings. 

Based on the inflation data, the agency believes the first of a “cautious” series of interest rate cuts will come in April, matching market expectations. 

However, Seville noted that December’s minutes underlined the ECB is concerned about wage growth needing to be consistent with the inflation target, among other issues, which may keep rates on hold for longer.

ECB warns high rates are pushing economy towards fragility

Certain ECB officials have spent the month resisting market anticipations of interest rate reductions in the spring,  emphasising the importance of waiting for first quarter wage data.

“Will hopes of a cut in the spring be met? It would seem not,” said Neil Birrell, CIO at Premier Miton Investors. 

“Even though the trend in underlying inflation is on a good downward path, the ECB will at least talk tough, and we should expect them to apply a safety-first approach. The risk of ‘too high for too long’ is clear, but so is the risk of inflation.”