ECB’s Centeno: A Generalised Back-Tracking in Monetary Policy May Be Ill-Advised

12 May 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Mario Centeno on Wednesday voiced opposition to a ‘generalised back-tracking’ of monetary policy.

In a speech at the APDC 30th Digital Business Congress, Centeno, who heads Banco de Portugal, said that ‘we expect economic activity to recover gradually, supported by a continuation of the strong and decisive policy response and the rollout of the vaccination progress.’

‘The joint impact of the monetary and fiscal policies has been crucial and has to be preserved’, he said. ‘A generalised backtracking in monetary policy may be ill-advised.’

He appeared to suggest that ‘backtracking’ should not be undertaken without recognising the importance of monetary policy’s strong response to the crisis. ‘The €4 trillion of asset purchases and the €2 trillion of liquidity provisioning did make a difference’, he said. ‘Absent such policies, the materialisation of a disruptive scenario would be more likely.’

Noting that the ECB had ensured that financing conditions were favourable for all sectors of the economy, he asserted that ‘[i]t is our duty to make sure that no sector is left behind and that viable firms will have the necessary support.’

However, he added, fiscal policy is also called on for this.

The protection of employment during the crisis is ‘is the best condition I can think of to guarantee a broad-based recovery’, he said. ‘European firms avoided the destruction of hundreds of millions of years of accumulated human capital, as measured by years of tenure.’