ECB policymakers split on March signal, meeting accounts show

FRANKFURT (Reuters) - European Central Bank policymakers meeting last month were split in their interpretation of inflation trends and the type of signal they should send about their next rate move, the accounts of their meeting showed on Thursday.

The ECB raised its key rate by 50 basis points to 2.5% on Feb. 2 and promised a similar hike for March 16, but economic data since the meeting has suggested that inflation is even more broad and durable than many had feared.

Some policymakers were unhappy with giving such a firm signal about the next rate hike because they thought underlying inflation might be turning around.

"Reservations were expressed on the proposed communication of an intention for the March meeting," the ECB said in the accounts of its Feb. 1-2 meeting.

"It was noted that the short-term momentum in core inflation had also started to decline somewhat," the ECB said, adding that the proposals were eventually approved by a "broad" majority.

Markets consider the March rate hike a done deal and have priced in a similar move for May given stubbornly high underlying inflation.

Fresh figures on Thursday showed that underlying inflation, which excludes volatile food and fuel prices, rose to 5.6% in February from 5.3% as the cost of services surged, confirming fears among conservative policymakers that price growth is becoming sticky above the ECB's 2% target.

Higher core inflation is likely to widen the debate on the 26-member Governing Council, with some, including Bundesbank chief Joachim Nagel, arguing for continued rapid rate hikes while others, such as Italy's Ignazio Visco, calling for more measured steps given the big moves already done.

Underlying inflation is now proving so stubborn that investors have increased their bets for the peak ECB rate by about 50 basis points in the past month and now see the deposit rate exceeding 4% around the turn of the year.

Policymakers, however, appear united in the view that once rates peak, they need to stay there for some time to ensure that inflation does indeed come down.

(Reporting by Balazs Koranyi; Editing by Catherine Evans)