ECB’s Elderson: Still Under High Uncertainty; Need Steady Hand for Monetary Policy

17 June 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Executive Board member Frank Elderson on Thursday said monetary policy needed to stay the course for now and safeguard the economic recovery.

Speaking at the IIF G20 conference, Elderson said that ‘[w]e are still dependent on continued support by policy authorities.’

‘We need a steady hand still in terms of monetary policy … preserving favourable financing conditions, ensuring that the economy is not deterred in pivoting this critical point.’

‘There’s good news, and there’s still uncertainty, and this leads us to steady hand’, he said.

As for the good news, Elderson noted that ‘[t]he outook has certainly improved in recent months’ and pointed to the fourth consecutive upgrade of the ECB’s staff macroeconomic forecasts. ‘We also expect the economy to return to full capacity earlier than previously anticipated.’

‘But we are not there yet’, he continued, and the environment is still characterised by ‘considerable uncertainty’. This in part reflects the fact that despite Europe’s vaccination progress, ‘vaccination rates are much lower in other parts of the world’, in addition to which virus mutations pose a threat, he said.

‘Second, the underlying inflation pressures are still muted’, he said.

Although the ECB can take measures, how economic agents react isn’t a given, he said. ‘Us contributing to favourable financing conditions is one thing,’ but the ECB can’t tell governments, firms and households what to do with these, he said.

However, if favourable financing were invested in a greener, more digital economy, ‘that would certainly help the growth potential’, he said.