ECB officials see less of a rate hike than market estimates

According to a new internal model that could play a key role in further discussions, European Central Bank officials believe that rates need to be raised at a lower rate than what markets currently expect in order to contain inflation.

The new model, dubbed the Target-Consistent Terminal Rate, shows that the ECB needs to raise the deposit rate to 2.25% - and maybe even less if it cuts the balance sheet - in order to bring inflation back to its 2% target.

This figure is well below market forecasts that the ECB deposit rate would peak at just above 3%, and it indicates that ECB staffers view inflationary pressures as more subdued, in contrast to investors and even some central bank governors.

But policymakers at the meeting were skeptical of the model, with many criticizing a number of its key assumptions after the staff failed to predict the current spike in inflation, sources said.