ECB’s de Cos Sees No Room for Complacency About Monetary Policy

26 April 2021

By David Barwick – FRANKFURT (Econostream) – There is no room for complacency about monetary policy, European Central Bank Governing Council member Pablo Hernández de Cos said Monday.

In an article for the magazine Economistas, de Cos, who heads Banco de España, said that ‘the high uncertainty and fragility of the recovery in the euro area, medium-term inflation expectations that are well below our objective, and nominal effective exchange rate developments that in recent months have offset much of our stimulus, suggest that there is no room for complacency with regard to monetary policy.’

The ECB will keep an eye out for any impact of exchange rate developments on medium-term inflation, he said.

Pandemic emergency purchase programme purchases would be conducted flexibly in every respect so as to keep financing conditions appropriately favourable to counter the pandemic’s downside impact on the path of medium-term inflation, he said.

He reiterated the ECB’s willingness not to exhaust the PEPP envelope, but also to recalibrate it if warranted.

Other authorities ‘must understand that, given the uncertainty about the future evolution of the pandemic and, therefore, about the solidity of the economic recovery, it is essential to maintain the stimulus measures, now in a more selective and targeted manner’, he said. ‘A premature withdrawal of these measures would damage to the productive fabric of the euro area and, potentially, to our financial system, and would exceed the possible medium-term costs of maintaining them over time.’

The crisis is not yet over and the most recent pandemic-related developments are ‘warning signs that the road to recovery will remain long and fraught with risk’, he said. The risks to the ECB’s central scenario of a 7.3% economic contraction last year and growth of 3.9% this year are on the downside, he said.