(Bloomberg) -- European Central Bank officials deemed a premature reduction in interest rates a bigger danger than cutting too late, an account of their last policy meeting showed.

There was broad consensus among policymakers convening in Frankfurt that it was too early to discuss lowering borrowing costs, according to the account of the Jan. 24-25 gathering, which was published Thursday.

“The risk of cutting policy rates too early was still seen as outweighing that of cutting rates too late,” the ECB said. “Having to reverse course, in the event that economic activity picked up more strongly than expected, wage growth accelerated or renewed inflationary pressures emerged, could entail high reputational costs.”

Investors are focused on when officials will start undoing their unprecedented monetary-tightening campaign, with the deposit rate now at a record-high 4%. They see inflation coming down more rapidly than the ECB’s current outlook, though a majority of policymakers appears to prefer caution in loosening, looking to the summer for an initial move.  

Other key comments from the account:

On Interest Rates

  • “There had been further progress on all three elements of the reaction function, which gave grounds to be confident that monetary policy was working”
  • “All in all, members signaled that continuity, caution and patience were still needed, since the disinflationary process remained fragile and letting up too early could undo some of the progress made”

On Markets

  • “It was widely felt that the current market pricing of future interest rates was not a sign that markets did not understand the ECB’s reaction function. Instead, it appeared that markets simply expected inflation to be lower than foreseen in the December staff projections, notably for 2024”
  • “Since the lower path for interest rates currently expected by markets was in part an endogenous reaction to lower inflation, the extent to which lower nominal rates would translate into higher growth and inflation in the future needed to be carefully assessed”

On Inflation and Wages

  • “It was argued that, on the basis of current information and updated assumptions, and in particular lower energy prices, the new staff projections due in March were likely to show a downward revision to inflation for 2024”
  • “Given the very tight labor market, it was prudent for the Governing Council to exercise caution on wage prospects and to await evidence that wage growth was actually moderating as projected for 2024. It was argued that the Governing Council would need to see some hard data confirming that wages had turned the corner”

On the Economy

  • “Members widely acknowledged that growth would likely be weaker than expected in the short term. So far, however, the decline in inflation was coming at a relatively mild cost in terms of economic activity”

--With assistance from Sonja Wind.

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