ECB Chief Economist Philip Lane said in a speech that the upcoming September monetary policy meeting will be the “start of a new phase” for the central bank. This new phase consists of a ” meeting-by-meeting (MBM) approach” to setting interest rates.

At a basic level, the transition from rate forward guidance to the MBM approach is in line with our monetary policy strategy, which assessed that forward guidance was primarily an appropriate response to the lower bound constraint,” he said. “As policy rates move away from the lower bound, the inherent flexibility of the MBM approach is better suited to calibrating monetary policy in a highly uncertain environment.”

Lane also explained that the MBM approach essentially has “two elements”, the terminal rate, and the speed to close the gap between prevailing interest rate and the assessed terminal rate.

Full speech here.

ECB board member Isabel Schnabel said, “Both the likelihood and the cost of current high inflation becoming entrenched in expectations are uncomfortably high. In this environment, central banks need to act forcefully.”

Governing Council member Martins Kazaks said, “Frontloading rate hikes is a reasonable policy choice. We should be open to discussing both 50 and 75 basis points as possible moves. From the current perspective, it should at least be 50.”

Another Governing Council member Francois Villeroy de Galhau said ECB needs to be at “neutral rate” before the end of the year, “after another significant step in September… Have no doubt that we at the ECB would if needed raise rates further beyond normalization: bringing inflation back to 2% is our responsibility; our will and our capacity to deliver on our mandate are unconditional.”

Governing Council member Olli Rehn said, “The reality is that we have excessively high inflation globally, also in Europe — that’s why it’s action time. The next step will be a significant move in September, depending on the incoming data and the inflation outlook.”

In the accounts of ECB’s July 20-21 meeting, it’s noted that “a very large number of members” agreed that it was appropriate to hike interest rates by 50bps. The 50bps hike was seen as “warranted in view of the worsening of the inflation outlook since the Governing Council’s June meeting”.

“Some members” argued in favor of a 25bps hike as that was the “intended move communicated” at the June meeting. Also, “with recession risks looming25bps hike was seen as more in line with a “gradual monetary policy normalization.” It’s also warned that deviation from earlier guidance would “add to the prevailing market uncertainties”. But some also argued that a 50bps hike provided more clarity for market participants.

It’s also emphasized that the 50bps hike “did not constitute an upward shift in the interest rate path but rather a frontloading of the policy normalisation.” As for September meeting, there was broad support to move to a “meeting-by-meeting approach” to interest rates.

Full accounts here.