ECB’s de Guindos: Mid-Term Outlook Brighter But Inflation to Stay Low

28 November 2020

By David Barwick – FRANKFURT (EconoStream) – The medium-term outlook has brightened thanks to progress towards a medical resolution of the pandemic, but the European Central Bank’s coming recalibration will take into account the fact that inflation is seen remaining low, ECB Vice President Luis de Guindos said Saturday.

In an interview with Finnish daily Helsingin Sanomat, de Guindos, according to a transcript provided by the ECB, reconfirmed the tools the ECB’s policy recalibration would focus on.

While 4Q will undershoot projections, ‘the medium-term outlook – mainly because of the ray of hope brought by news of the vaccine – looks brighter’, he said. However, the ECB’s assessment of its policy stance considers not just output, but inflation as well, he observed. This ‘will remain low, and we will therefore keep monetary policy accommodative so that inflation can converge to our medium term aim’, he said.

‘All in all, we expect inflation to be close to 1% in 2021 and to see it moving up towards 1.2% or 1.3% in 2022’, he said.

(The ECB’s current staff projections from September, due to be updated on December 10, call for euro area HICP inflation to rise from 0.3% in 2020 to 1.0% and 1.3% in 2021 and 2022, respectively.)

The recalibration promised for December 10 ‘mainly involves our targeted longer-term refinancing operations (TLTRO) … and the pandemic emergency purchase programme (PEPP)’, he said. ‘These are the two main tools if the situation gets darker, although the arrival of the vaccines brings hope regarding the medium-term outlook.’

The euro area economy ‘will start to recover in 2021 and continue its revival in 2022’, he said. It is essential that furloughed workers remain employed and laid-off workers find new employment, so that pre-pandemic levels of activity and employment can be regained, he said.

Leading indicators show a quarterly contraction in 4Q to be ‘the most realistic scenario’, he said. Beyond that, the ‘main issue’ is the rollout of vaccines, the precise nature of which ‘warrants our attention’, he said. ‘Hopefully, a very high percentage of the population will soon be vaccinated and the nightmare of this pandemic will begin to draw to a close.’