ECB’s de Cos: Monetary Policy Should Be Patient but Alert to Disanchoring of Expectations
30 November 2021
By David Barwick – FRANKFURT (Econostream) – Monetary policy in the euro area should be patient about withdrawing accommodation, but remain alert to the potential for expectations to disanchor, European Central Bank Governing Council member Pablo Hernández de Cos said Tuesday.
Speaking before the Budget Committee of the Spanish Senate, de Cos, who heads Banco de España, said that ‘recent developments in inflation remain consistent with a return to moderate inflationary pressures over the medium term.’
Monetary policy should thus take ‘a patient approach when assessing a possible revision of its current accommodative stance, with a view to stabilising the medium-term inflation rate in the vicinity of 2%’, he continued. ‘Nonetheless, we should pay attention to the possibility of signs of a disanchoring of expectations, as this would be the main factor that would make this episode of high inflation persistent.’
De Cos warned that the pandemic remained a source of uncertainty for economic developments, along with supply constraints and more expensive raw materials that were pushing up inflation.
Although economic projections were based on the assumption that the pandemic would dampen activity progressively less, experience is now showing that ‘a more unfavourable epidemiological evolution, with spikes in infections, cannot be excluded’, he said.
‘Moreover, although the likelihood is, in principle, very low, scenarios with more serious episodes of infection, linked to the possible spread of more infectious and, in the worst case, vaccine-resistant strains of the virus, requiring the reintroduction of containment measures, cannot be ruled out’, he continued. ‘In any case, it should be stressed that the degree of adaptation of economies to successive waves of the pandemic has increased significantly.’