(Bloomberg) -- European Central Bank officials regarded the outlook for inflation as highly uncertain, leaving them without a clear view on where interest rates are ultimately headed, according to an account of their July policy meeting. 

“Emphasis was put on the merit of sticking to a data-dependent, meeting-by-meeting approach in an uncertain environment,” the account published Thursday said. 

While some said another hike might be needed next month in the absence of “convincing evidence that the effect of the cumulative tightening was strong enough,” others argued “that it was quite probable that the September ECB staff projections would revise the inflation path sufficiently downwards toward 2%, without the need for another interest rate hike in September.” 

Policymakers are due to meet in two weeks to decide whether a recent slowdown in economic activity is enough to justify a pause in their interest-rate hiking cycle, or whether persistent inflation pressures warrant another step. Data on Thursday showed headline inflation in the euro area remaining steady at 5.3% in August while the underlying measure that officials are focusing on slowed to the same level. 

Other comments from the ECB account: 

On Interest Rates:

  • “All members supported the 25 basis point rate increase proposed by Mr Lane, while a preference was also initially expressed for not raising the key ECB interest rates in view of risks of stronger than anticipated transmission”
  • “Any further tightening had to be assessed meeting by meeting, on the basis of the incoming data and a ‘risk management approach’”

On Inflation:

  • “It was argued that it was preferable to tighten monetary policy further than to not tighten it enough. Before deciding to stop the tightening cycle, the Governing Council needed clearer signs of whether inflation would converge to target once the effects of recent shocks had faded”
  • “Members also assessed the level and persistence of underlying inflation as being a source of concern, although it was acknowledged that indicators of underlying inflation had been broadly stable in recent months”

On Policy Transmission:

  • “Members concurred that there was ample evidence that policy tightening was being transmitted strongly to broader financing conditions”
  • “While there was little doubt that the ‘first leg’ of monetary policy transmission to financial conditions was working well, a better understanding of the ‘second leg’ of the transmission process from financial conditions to the real economy was seen as crucial”

On Minimum Reserves:

  • “Some members expressed reservations against a change in the remuneration of minimum reserves” as it might “add to the tightening effect of the monetary policy”
    • “Other members, by contrast, saw the minimum reserve requirement as a monetary policy tool that could be used to support or complement the intended restrictive monetary policy stance”
  • Ultimately, “members expressed a willingness to join a broad consensus supporting the measure”

--With assistance from Jana Randow.

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