They Said it - Recent Monetary Policy Comments Made by ECB Governing Council Members

22 December 2021

By David Barwick – FRANKFURT (Econostream) – The following is a reasonably complete compendium of the most recent comments made by European Central Bank Governing Council members with respect to monetary policy. The frequency of updates will correspond approximately to the frequency with which relevant comments are made.

Holzmann (Austrian National Bank):

(22 December) ‘If we see that ... in the inflation rates that have been realised, the decline is not as ... expected ... then in a sense the alarm bells are ringing, and what could be done then? We in the Council can always reduce or halt the purchases that are still outstanding in the APP. And if that happens, it will be a price signal to the markets, because we have decided that interest rates will only be raised after the purchases have been suspended or stopped. That means that in an extreme case it would be possible that this year [2022] … data-driven, purchases would be suspended … and even, if one wants, at the end of the year or beginning of next year, the interest rate hike would take place, roughly at the same time as the third interest rate hike in the US. We are always a bit later.’
‘As always, forward guidance is supposed to guide the financial markets, but it is not something that is an ironclad law. But normally if we say we don't need any more purchases now because our inflation target in ‘23 and ‘24 is already at or above 2%, then that would certainly be a strong signal that also the interest rate will rise in the ... following two quarters. If, and we don't expect this, but just to give an example, inflation were to rise … extremely, i.e. with second- and third- round effects, then one could also imagine that what I have already brought up in discussion, that in this case one could well imagine raising interest rates beforehand and not waiting until the purchases are phased out, so as not to upset the markets. That got some, but not a lot of support in the Council ... but ... things are flexible and so I think in an extreme case there could be the flexibility as the case may be, but it's not very likely.’
‘On the question of inflation target achieved, 1.8% is not particularly distinguishable from 2% over a distance of one or two years, which leads to a different assessment of whether it has been achieved or not. The ECB has ... tried to show here that we arrive at below 2. There were indeed a number of people who said, yes, I think we have already reached 2%, or the difference is not so big that it should not be articulated like that. It has some influence on the policy, but not a significant one, and yes, there were differences, and I don't give any information about my voting behaviour at the meeting.’
‘… the supply chain disruption was more severe and longer lasting, and again, the economic as well as technical explanation is surprisingly not so clear. ... And in both areas we are now assuming, yes, gas price increases will still be there at the beginning of ‘22 due to ... the delayed pass-through to consumers ... And in the supply chains there is ... no significant reason at the moment ... why this should continue. And that explains why the development is assessed that way. What is certainly the case, however, where there are differences in assessment, is the question of the upside risk, where some of the Council colleagues also believe that the upside risk is higher than is perhaps assumed and that we should therefore be very attentive, very vigilant, and perhaps ready to act if this development occurs.’
‘The single greatest source of uncertainty ‘is probably something that is not really built into this forecast, if you will, it’s the security policy and global economic discussion, because if that happens, there could be a very, very large reduction in the economic area … And on the price side, what we can't really estimate yet, despite all the close scrutiny of the data ... is the question of second- and third-round effects. ... So far the wage development is such that we have no surprises … but it would be possible. And the second aspect is on the pricing side of the companies. Currently it doesn't look like companies are taking extreme advantage of that, but that could still happen. That could trigger second- and third-round effects ... and that would then cause higher inflation values.’
(18 December) ‘What is assumed, however, is that after peaking at the end of 2021, inflation will decline steadily in 2022.’
‘As long as the projected inflation rate is below 2%, further monetary policy measures are needed. But, what we have done ... we have already made substantial restrictions in the purchase programmes in Thursday's decision.’
‘There will be interest on savings accounts again when inflation is at a level that is our target variable. Then it will be possible to raise interest rates here again.’
‘But I can assure you that if there are differences in the voting behaviour, there are not big gaps here, but rather nuances that play a role, for example in the assessment of where inflation lies at the end of the planning horizon.’
There are indications that there is a risk that inflation will be higher. But one will be able to check this assessment very, very quickly when one sees next year what the inflation realisation is. If there is not this sharp decline that is being talked about at the moment, then everyone, including other colleagues, will certainly also revise their views, and we will of course change our monetary policy orientation.’
‘Inflation, as it is forecast, will move towards 2%. Whether it comes below 2% in the final forecast, or above, will determine which measures of monetary policy are adjusted. All of us in the Governing Council are ready to put measures in place if inflation should increase, if the inflation forecast should increase, then existing measures that are still in place can be reduced, suspended, and then there will also be an increase in interest rates again.’
‘If things change, if there are higher inflation forecasts, then we will do what we promised when the purchase programmes expire. Only then will there be an interest rate hike.’
If inflation were to go to 3% beyond next year, that would ‘absolutely’ be a reason to act and raise the policy rate.
‘We are aware that this fiscal dominance is an issue that concerns us all. However, I cannot see this dominance from the decisions we have taken so far, also because there are enough people in the Council who are quite aware of the issue and would also correspondingly demand counteraction and would also articulate themselves accordingly.’
I think it was a very balanced decision overall [on Thursday], with comments in both directions.’
‘Our assessment, which is also reflected in the forecasts, is that we expect a weakening of the upswing, i.e. that the economic development will not be as good, but that despite everything the recovery will be very strong and that we will already reach the level of 2019 again at the beginning of 2022, and that the economic development will continue to be above 4% for the year.’

Schnabel (ECB):

(22 December) ‘Uncertainty is very high, as it has been throughout the pandemic. In general, I think the recovery continues. But owing to the recent wave of infections and the new variant, we are seeing headwinds in the short term. Now we’re looking at a weaker fourth quarter and this is likely to spill over to the beginning of next year. However, we expect a stronger rebound thereafter, so activity essentially shifts over time. This has been a recurring pattern during the pandemic. Households in the euro area have accumulated considerable savings, which supports the recovery. Hence, we see the recovery as being delayed rather than derailed.’
‘All those factors [behind high inflation] are likely to either reverse or at least become less pronounced over the coming year. Take supply bottlenecks: we don’t know how quickly it will happen, but it’s clear that over time they will be resolved. Similarly, it’s highly unlikely that energy prices will continue to go up at the same speed. And lastly, base effects will disappear. We know that inflation is going to be elevated for a certain period of time, but also that it’s going to decline over the course of next year. We are less certain about how fast and how strong the decline will be.’
‘Most economists hadn’t expected the extent of the increase in inflation. That’s why we are increasingly relying on surveys of companies and households to better understand what is happening. Some companies are telling us they expect the supply chain bottlenecks to last into 2023. We are well aware of the uncertainty around our inflation projections. There is a risk to the upside. Another factor that plays a central role is wage developments. Current data point to moderate growth. However, we also learned from our survey among companies that they expect wage growth to pick up. It’s something we are monitoring very closely.’
‘One of the trickiest questions is whether the economy is undergoing some fundamental structural changes that are not yet reflected in the models. Are we going to go back to the disinflationary environment that we had before the pandemic? Or are we entering a new phase that may be characterised by inflationary rather than disinflationary shocks? Take climate change as an example. Previously, when oil prices were going up, shale oil producers quickly increased their levels of production, which put downward pressure on prices. That is not happening to the same degree now. This can probably be explained by the fact that, owing to the green transition, there is less incentive to invest in shale oil facilities. If that’s true, we are perhaps going to see stronger upward trends in oil prices in the future.’
[Whether we are entering a new normal] ‘remains to be seen. We should follow a risk management approach so that we can quickly respond should we see signs that inflation will stay more permanently at a level above our 2% target.’
‘We have taken an important step towards the normalisation of our monetary policy. This has to be a gradual process – it can’t happen all at once. If we responded too quickly, there would be a risk of choking the recovery by tightening financing conditions too abruptly. We are taking a step-by-step approach to normalisation, the pace of which can be adjusted to the incoming data. We need to retain optionality to make sure that we sustainably reach our 2% target.’
‘The reason why our policies have been accommodative for so long is that inflation was stubbornly low. Despite all the measures we have taken, it has been hard to get medium-term inflation back towards the 2% target. Over the past year, however, we have made substantial progress, and it seems we are on the right path to achieving our target in a more sustainable manner. This is a precondition for policy normalisation.’
‘Because the interest rates were already very low, we had to use new tools, which have proven highly effective. But the effectiveness of some instruments diminishes over time. We have already bought a lot of bonds, and the balance of the benefits and costs of additional bond purchases deteriorates as the economy gains ground. This is why we slow down purchases now. But given the prevailing uncertainties, this has to be gradual, also with a view to ensuring the smooth transmission of our policy across the entire euro area.’
‘I hope [it is possible to imagine a return to a normal monetary policy]. The developments over the past year give reason for cautious optimism. Before the pandemic, we were in an environment of relatively low growth and too low inflation for many years. But now we are seeing that inflation is picking up and inflation expectations are realigning with our target of 2%. This is precisely what can help us get out of the low growth, low inflation environment and back to a more normal world.’

Müller (Eesti Pank):

(21 December) ‘… looking ahead, it is difficult to imagine that this rate of increase in energy prices will continue and that, as a consequence, energy price inflation will start to fall over the next year’, he continued. ‘Of course, the fact that price growth is slowing down does not mean that price levels will fall sharply - we are talking about a slowdown in growth. However, it would be logical that energy prices will come down from today's peaks.’
(17 December) ‘The outlook as a whole is optimistic: the economy is recovering rapidly from the crisis, unemployment is falling to an all-time low and people's incomes are rising. At the same time, the sharp rise in prices in recent months has come as an unpleasant surprise to everyone, and it is also forcing euro area central bankers to adjust their plans. … Almost half of the rapid rise in prices is due to higher energy prices, but the prices of more and more other goods and services are also rising. It is clear that such a rapid rise in energy prices will not last long, which is why we are expected to be close to the moment when the general rise in prices will start to slow down again. It is also reasonable to assume that as the effects of the pandemic mitigate and companies adjust, supply problems will decrease, which has pushed up the prices of many goods.’
‘… the longer the price increase remains relatively fast, the more likely it is that it will be passed on to more and more goods and services. Therefore, the Governing Council of the European Central Bank cannot ignore the accelerated rise in prices, even if a slowdown is expected in the near future.’
‘The changed inflation outlook requires a change in the monetary policy stance. Understandably, however, this is being done with caution, as uncertainty about near-term economic developments remains high.’
‘For me, what is important is the change of tone in the messages of the Governing Council. The acceleration in price increases and the improvement in the economic situation will allow the central bank to reduce the injection of money into the economy and to clearly set a course of "normalisation" of central bank policy. This is already reflected in financial market expectations that the ECB could start raising interest rates in early 2023. In the Governing Council's decisions, we are no longer just concerned about a slowdown in economic growth and dangerously low price rises in the long run, but are also prepared to react to the possibility that the pace of price growth in the euro area may not slow back to 2% fast enough. In that case, we are also prepared to tighten monetary policy more rapidly than described above.’

de Guindos (ECB):

(20 December) ‘Uncertainty in the economy weighs heavily. Before the South African variant emerged, we already had a major rebound of infections in Central Europe. That immediately created elements of uncertainty and obscurity. That said, we have to bear in mind that in Europe in 2020-2021 the recovery has been intense, it is going to be more than 5%. The second and third quarters saw very strong growth. And although in the fourth quarter we lost a little bit of activity, it continues to be an expansive quarter. The recovery is there, we have moderately downgraded our forecasts for 2022 for the euro area. But for example, at the beginning of next year we will reach the level of income we had at the beginning of the pandemic.’
‘Although inflation is a global phenomenon, we cannot compare what is happening in Europe with what is happening in the United States or the United Kingdom. Inflation in the US is higher than in Europe. It has a much more expansionary fiscal policy than ours. And let's not forget that their unemployment rate is 4%. They are in a different position to us and they have been taking measures according to those circumstances which are not ours. Our inflation is being more persistent, not as transitory as we had projected. It has to do with factors such as delays in the logistics sector, bottlenecks in the supply of intermediate goods. All of that together with demand growing strongly, has led to inflation that is not as transitory as we had expected. We project inflation to be above 3.2% in the first half of next year. And it will start to fall and be below 2% by the end of next year. These are projections in an environment of enormous uncertainty.’
‘We set up an emergency programme to deal with the pandemic. This programme was due to end in March next year. We have ratified that termination and thereafter we will continue with a procurement programme which is our normal programme. It is very important to bear in mind that this emergency programme was for exceptional circumstances. The volume of purchases has been to avoid a financial crisis that would accumulate to the economic and health crises. That has been achieved. Interest rates for all economic agents have been kept at very low levels and a tightening of financial conditions that would have led to a debt crisis that would have overlapped with the economic and health crisis has been avoided.’
‘The ECB's debt purchases have injected liquidity and avoided a rise in interest rates and a breakdown in the financial markets. It has been an intervention that has allowed vulnerable countries such as Spain, with very high public debt ratios, not to have to worry too much about what was happening with interest rates or what was happening with the famous risk premiums. At the moment the Spanish 10-year bond is paying an interest rate below 0.40. This has allowed all economic agents to benefit from the financing conditions. It has not only been governments, but also companies and families. The intervention of Europe and the ECB has been crucial for countries in the aftermath of a brutal health and economic crisis.’
‘What I can tell you is that beyond the variant there are several issues. First of all, the percentage of the European population that is vaccinated is much higher. I have experienced it, the effect of infection when you are vaccinated is much more limited. Secondly, governments have been learning, the measures that are being taken are no longer so generalised, they are much more surgical. Avoiding the spread of the pandemic by minimising the economic impact. Thirdly, economic agents have learned to live with this new situation. The market economy is learning from these environments.’

Villeroy (Banque de France):

(20 December) ‘The inflation "hump" is higher and longer than expected, mainly due to energy costs, with a likely peak in late 2021-early 2022. Tensions should gradually dissipate next year, but inflation will remain relatively high on average in 2022, at 3.2% for the euro area. We should then converge around our 2% target. A return to normal in 2023-2024 would not, however, mean a return to the situation that prevailed between 2013 and 2019, characterised by too low inflation. On the contrary, we could return to a more balanced inflation regime, as before the financial crisis of 2008, with inflation around 2% on average in the euro area. The rise in average wages would also be a little higher, around 3% per year, a figure that is compatible with companies maintaining strong margins thanks to productivity gains. This would increase purchasing power, after three Covid years in which it will have increased on average. However, we are careful to ensure that there is no out-of-control price-wage spiral.’
‘Since the beginning of the pandemic, each new wave has had a smaller economic impact than the previous one. This resilience of European growth justifies the end of the exceptional monetary support, while maintaining a fair level of accommodation.’
‘Our objective is price stability in the euro area, i.e. to converge towards 2% inflation: we are making significant progress here. And for this we need a good transmission of our monetary policy throughout the euro area, without undue fragmentation. This is why we are maintaining in the PEPP the reinvestment of debts that have been repaid, and even the ability to reactivate our purchases: one of the contributions of the PEPP is that it allows a great deal of flexibility in our interventions between asset classes or between countries.’
‘The ECB ensures the proper transmission of its monetary policy, avoiding unwarranted fragmentation between euro area countries. But it does not in itself have a spread or sovereign interest rate target. This is important for France as well. The ECB does not act to guarantee a certain level of interest rates to finance French deficits, but to fulfil its mandate of price stability.’
‘With the TLTRO decided in March 2020, the ECB has ensured that the right amount of medium-term financing for banks, and through them for the economy, is secured. We will have to continue to pay attention to this. But regarding the price of the TLTRO, the ECB had put in place exceptionally favourable conditions at -1% which are no longer relevant today. This is why we have just announced the end of this mechanism in June 2022; on the other hand, we will examine how to increase tiering, which mitigates the consequences of negative rates on banking intermediation.’
(17 December) ‘…we have taken clear, balanced and complete decisions. I think it was a good Governing Council. What is the situation regarding inflation? We have to be totally pragmatic, i.e. look at the data. We look a little at the forecasts, the models, the market expectations, but above all we look at the data and we listen to the business leaders. There is an undeniable inflation bump … it is higher than expected in 2021-2022, essentially because of energy prices and it lasts a little longer than expected. So a forecast of 3.2% on average in 2022. By the way, this average masks a rather different trend, i.e. inflation should fall gradually over the year.’
‘We are probably quite close to the peak of inflation, but we remain extremely vigilant. Again, we are guided by the data, not by beliefs, not by bets. But that is the perspective. After that, we are converging towards our inflation target of 2%, and that's good news.’
‘This inflation forecast of around 2% in 2023-2024 - by the way, this is the forecast of almost all international organisations and private forecasters - means something important that has perhaps not been stressed enough. It is that after the bump, which once again we take seriously, we are not returning to the pre-Covid regime, remember, of very low inflation. There is in some ways a new inflation regime around the 2% target. This is more similar in some respects to what we knew before the financial crisis, in the years 2000-2007. And I would add that we should perhaps not give undue importance today to a difference of 0.2% between the forecast of 1.8 and the target of 2. This is the margin of uncertainty at the forecast horizon of 2024. We will adjust our monetary policy in the future - we can do this at any time - according to the actual data that we observe. There is a very pragmatic and close steering, if I may use a navigation term, a close steering of monetary policy according to the actual situation. But this is the central scenario today.’
‘On wages, negotiations are ahead of us. All these are things that we are looking at very closely, with modesty. I think everybody has to be humble in this period of uncertainty, but there are two possible mistakes on monetary policy. The first would be to tighten too soon when most analysts believe that these difficulties are real but temporary. In the opposite direction, if inflation becomes persistent and lasts longer, the mistake would be not to react. By the way, we said yesterday that we would adapt at any time. There is a word that has been used a lot which is not very nice, it is the word "optionality". If we were in a more sustainable inflation scenario, which again is not our central scenario, then we would not hesitate to act and we have the means to act.’
‘What did we decide yesterday? There were some very important decisions. The first decision was to stop the two exceptional crisis programmes, as we had said, in due course. That is to say, the net purchases under the famous PEPP, the massive asset purchase programme, and then on the TLTRO, which is perhaps less well known - it is a bank refinancing programme with ultra-favourable conditions - we stopped these ultra-favourable conditions.’
‘We are tightening up a bit. In any case, we are reducing exceptional crisis support. Why is this? First of all, it's an element of credibility. We are doing what we said we would do. And secondly, it is an element of confidence in the solidity of the European recovery, despite Omicron and the fifth wave. Of course, we have to be careful. Here too we have to be pragmatic and listen to reality and to companies. But as we said yesterday, European growth will be above 5% this year - that's very high - and should be above 4% next year.’
‘Through this decision [on December 16] ... it means that we are very significantly reducing the amount of our net asset purchases. The figures have perhaps not been sufficiently highlighted or analysed by observers. But this year, in 2021 ... our net asset purchases each month are on average a little over 90 billion euros. At the end of next year, in October 2022, this 90 billion will be reduced to 20 billion per month. That means a division by 4.5. ... it's an extremely significant reduction ...’
‘Central banks are not there to cover the financing needs of governments.’

de Cos (Banco de España):

(20 December) ‘… the view remains that the inflationary pick-up, which is proving stronger and more durable than anticipated a few months ago, is of a temporary nature, so that, over the medium term, inflation is expected to be somewhat below the 2% target. Against this background, we have decided to end the pandemic asset purchase programme (PEPP) at the end of next March, reducing the pace of purchases already in the first quarter. This decision reflects the fact that the negative impact of the health crisis on the medium-term inflation trend is considered to have been overcome.’
‘The economy will continue to be affected in the short term by the pandemic, but on the basis that agents have become more resilient after successive waves, so that it is expected that restrictions as severe as those introduced at the beginning of the pandemic will not have to be re-imposed. Economic recovery is a fact. And based on our forecasts, the euro area will reach pre-crisis GDP early next year. The aim now is to return to the pre-pandemic growth trend as well.’
‘The health crisis is clearly not over and we do not really know when it will end. That is why, among other factors, we have kept the option of re-activating the PEPP, if necessary. It is one of the elements of greatest uncertainty at present, but from the point of view of expected economic developments and the expected path of inflation, we think it is an appropriate time to announce the end of the PEPP. In any case, the amount of monetary stimulus will remain high and we can be reassured that the ECB will continue to support the economic recovery.’
‘And the main learning, in terms of monetary policy instruments during these pandemic years, is the effectiveness and efficiency provided by a high degree of flexibility in the purchase programmes. I am, in fact, in favour of this flexibility being structurally built into future purchase programmes. For the time being, we maintain a significant level of flexibility through the PEPP reinvestments and the extension of these until the end of 2024. And I stress that there is the possibility to re-activate net purchases under the PEEEP, if necessary.’
‘… three conditions must be met for there to be an increase in interest rates and it is clear that, at the present time, these conditions are not met in 2022. But furthermore, this orientation not only conditions the first rise in interest rates, but also the end of the purchase programmes, because there is a link between one and the other, given that it is established that rates will not be raised until shortly after the end of the purchases. In other words, the purchase programme will last until shortly before we raise interest rates. And for the latter, the conditions I have mentioned have to be in place.
‘Our forward guidance is intrinsically conditional on inflation developments and forecasts at any given time. You cannot make an abstract and unconditional commitment today about the future, because the economic scenario evolves over time. What we make is a conditional commitment. In that sense, we say that, if today's conditions are maintained, we will not see rate hikes in 2022. With the level of uncertainty we have, it is very difficult to go further in that anticipation. It will depend crucially on how core inflation and inflation expectations evolve.’
(20 December) ‘In the case of monetary policy, we in the Governing Council of the ECB are determined to continue to provide the necessary monetary stimulus to ensure that, over the medium term, inflation will durably reach the 2% target, without reacting to temporary shocks.’

Wunsch (National Bank of Belgium)

(17 December) ‘There’s a lot of uncertainty about 2023 and 2024, but my take is that we’re essentially at target. Whether you’re at target or just a little bit below or a little bit above doesn’t matter so much. What I’m a bit concerned about is the fact that we’d insist so much on still being below target.’
On faster tapering, ‘that’s to me not the big issue. The big issue for me is the narrative that doesn’t recognize enough that there seems to be an inflation issue in the world and we seem to see it very differently.’
‘We used to have low inflation rates and we were expecting to converge to the target. But today is very different. Now we’re clearly above target. We have an average inflation over four years that’s clearly above 2%.’
‘If we don’t believe that we’re going to have any kind of second-round effects, if we don’t believe our monetary policy is effective, at some point, we’re going to have a problem. Because otherwise we’re in a situation where we’re never going to exit.’

Rehn (Bank of Finland):

(17 December) ‘There is considerable uncertainty about the path which inflation will take, and I’m well aware that rising inflation feeds through to our everyday lives. The factors that have been driving inflation this year will not themselves lead to a longer term upsurge in inflation, unless they are accompanied by second-round effects and a wage-price spiral.’
‘Bringing the pandemic under control remains central both in terms of people’s health and for the economy.’

Weidmann (Bundesbank):

(17 December) ‘The risks for the inflation rate are skewed to the upside, both in Germany and in the euro area as a whole. Monetary policymakers should not ignore these risks. We need to be vigilant.’
‘The [German economic] upswing has been slightly delayed.’
(30 November) National central banks ‘must be careful not to get caught in the wake of fiscal policy. And with sovereign debt high, monetary policy should be wary of any pressure to maintain its very loose stance for longer than the price outlook dictates.’
‘The broader central banks interpret their monetary policy mandate, the more likely they are to become entangled with politics. The more likely they are to be overburdened with ever new goals and desires. And the more likely their independence would be called into question.’
(24 November) Measures linked specifically to the pandemic ‘must be terminated as soon as the emergency situation has been overcome’, including the flexibility of the PEPP, which ‘should be reserved for extraordinary situations.’
Urged ‘not locking in the very loose stance of monetary policy for too long.’
‘[C]urrent price increases are significantly reducing purchasing power’.
Agreed that there were downside inflation risks in Germany and the euro area, but ‘the upside risks clearly outweigh the downside risks, recently even more so.’ There is ‘no evidence of a significant rise in broad-based wage pressures in Germany’, but ‘companies' complaints about labour shortages have increased considerably - especially in this country, but also among our European neighbours’, setting the stage for higher wage demands.
Short-term inflation expectations have ‘already risen considerably’ among not just German households and firms, but also experts and financial market participants. Experts’ long-term expectations are also up ‘slightly’.
‘All in all, however, it could well be that the inflation rate in the euro area will not fall below 2% again in the medium term. Therefore, monetary policy should not look one-sidedly at the risk of an inflation rate that is too low, but should also pay attention to the risk of an inflation rate that is stubbornly too high.’

Vasle (Banka Slovenije):

(17 December) ‘Inflation will remain elevated in the coming year and will converge towards the 2% target by the end of the forecast horizon.’
‘Risks to the economic outlook are high and evenly distributed, depending mainly on energy price developments and conditions in the supply chains.’
‘The reinvestment of the maturing principal of the PEPP securities has been extended by one year and will continue at least until the end of 2024, thus ensuring all the necessary flexibility of the programme to address the fragmentation in the euro area linked to the effects of the pandemic. We are also ready to resume net purchases after the PEPP ends in March 2022, should this be necessary to address negative shocks linked to the pandemic.’
‘We expect that the period of significantly more accommodative TLTRO III conditions will come to an end in June next year. We will also consider the appropriateness of calibrating the two-tier interest rate on surplus reserves.’
‘Our decisions were also based on new forecasts. Their key message is that the economic impact of the pandemic in the euro area is diminishing, so that we expect high economic growth and very favourable labour market conditions this year and next.’

Lagarde (ECB):

(16 December) ‘We did not want to have a transition that would be hurting, and we also need to continue this progress towards our target and arrive at target, which we are not at yet at this point, which is the reason why we decided to increase the volume of purchases under the APP, but to increase it with a decline over the course of quarter two, quarter three and quarter four. Now, we're not making any specific commitment, if you read carefully our statement. We land at €20 billion in October, and we keep it opened, and we will maintain it at €20 billion until such time when we arrive at our target, which is the 2% over the medium term.’
‘Given the uncertainty, we also wanted to have as much flexibility and as much optionalities available. Hence, the reason why on the account of PEPP we've decided to extend the reinvestment period at least by one year, and we've also, as I said in relation to PEPP, we've also decided to keep it open-ended. We are driven by data, and we will be reviewing next March, next June, next September, as we receive updated projections. We will reassess, and as it says very clearly in the statement as well, we will adjust in either direction depending on the data that we receive. But suffice at this point to indicate that, under the present circumstances, as I have said before, it is very unlikely that we will raise interest rates in the year 2022. That still stands. But we have to be very attentive to what data tells us, and we will do so at each and every monetary policy meeting, and even more so when we get regular projections that are either ECB only, or ECB and national central bank projections.’
‘…about the impact of omicron, again, we are venturing in the realm of uncertainty. It will have impact, but in the first place we should acknowledge that our economies have become more resilient, stronger, and are more capable of adjusting wave after wave after wave, and variant after variant. So we don't know yet a lot from the scientific world as to the actual hardship of this virus and how bad it is relative to delta, for instance. We are still waiting for this data and this information from those who know, but the economy is more resilient. So it might have a dampening impact on demand, because people will consume less; people will go around less; people will be under restrictions, but it might also have an impact on the supply side as well. The balance between the inflationary or deflationary impact that omicron will have is still totally uncertain, which is why, as I said, in view of this uncertainty, and with the strong recovery, we believe that it is the right place to gradually decline over the course of time, but keep flexibility and optionality in order to respond to change of circumstances.’
‘We had a very, very large majority to support the overall package. So there were a few members who did not agree with one or the other element of the package, and therefore did not support it all, but I can tell you that it was a very, very broad majority that supported the whole package.’
‘So in relation to our inflation projections for 2023 and 2024, which are at 1.8% respectively, a small 1.8%, and a slightly higher 1.8% for '24, we are really making progress towards target. Are we at target, given that our target is 2% over the medium-term, and looking at the three criteria of our forward guidance? Not quite. Is there an upside risk? There is possibly an upside risk, but I think that staff, in putting their projections together, have in particular anticipated some impact on wages. We are, as you know, looking very, very carefully into wages, into negotiations, to determine how much of a second-round effect there would be on inflation. When we look backward, when we look at what's happening just now, we don't see much of that, and the numbers are not telling us that we are seeing second-round effects and that wage negotiations have delivered or are about to deliver numbers that would actually lead to second-round effects. But in the projections that have been produced by staff, drawing on the NCBs, the national central bank projections as well, there is quite a high level of wages that has been taken into account. So yes, of course, there could be a stronger recovery. There could be stronger wages being delivered. This is really going to be a factor also of two things that we are uncertain about, as I have indicated. How will the price of energy evolve in the course of the next few quarters? Is it going to be as elevated, and more elevated – there has to be a dynamic – than what we have seen so far? It's probably going to stabilise, but there is a level of uncertainty about it, for certain. The same goes for the adjustment between supply and demand, but it is probably to be expected that consumption patterns will resume in more normal ways, and that there will not be that sort of catch-up demand that we have observed. In the same vein, it is reasonable to think that supply will adjust. So on those two accounts, energy is probably projected to stabilise; supply and demand will adjust, we believe, in the course of '22. And on the wage account, and how much of a second-round effect it would have, as I said, we are extremely attentive to what happens on a weekly basis, but what we are seeing now, certainly, is significantly below the levels that have been factored into the projections that we have. So we certainly hope that we reach our target in the medium-term, and the efforts that we are deploying are intended to that effect.’
‘…about PEPP. As I said, we want flexibility, we want optionality, and as part of the flexibility we say very clearly – and I'm going to read again that paragraph, which is important 'Net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.' Pretty straightforward, but as always, it is going to be a decision by the Governing Council. So it's not something that will happen randomly, by the way; it will require a decision by the Governing Council on the recommendation of the Executive Board. We say 'net purchases', we don't say a particular amount, or emptying the balance of the envelope that we would have at the end of March. So it's clearly at the determination of the Governing Council, and depending on the circumstances.’
‘On TLTRO, as you know, it has provided ample liquidity at very attractive rates, and it has really been an incentive for banks to continue lending, and in the bank survey that we conduct on a regular basis, they are always indicating that TLTRO and TLTRO special conditions have been very effective in supporting the financing of the economies at enterprise and household levels. Clearly, as planned, and given the financing conditions that are available, we currently expect that the special conditions applicable under TLTRO IIIwill end in June 2022. This is really based on the currently favourable assessment of banks' funding and liquidity conditions, and the smooth banks-based transmission of our monetary policy. This does mean that the support transmitted through the TLTRO3 will end, because banks are going to continue to benefit from the attractive TLTRO III conditions. The first operation will only mature in September of '22, and the final one will mature in December '24. So banks are going to continue to benefit from those attractive conditions, unless they decide to elect for an early repayment, but otherwise, it will continue to be available. We will remain very attentive and we will monitor very carefully those favourable financing conditions going forward, in order to make sure that our monetary policy is transmitted properly throughout the banking system.’

Stournaras (Bank of Greece):

(10 December) ‘… progress in vaccinations is a major deterrent to the transmission of the pandemic and has contributed to the lifting of social distancing measures and the restart of the economy. However, we cannot yet say for sure that we have turned the page. The risk of serious mutations, such as the 'Omicron' we are currently facing, remains high and may lead to new waves of the pandemic, with serious repercussions for society, but also for the global economy, including the euro area. Under no circumstances should we be complacent. All relevant bodies need to be vigilant for the effective management of the consequences of the pandemic. It is essential that they continue to take steps to restore economic prosperity and promote social cohesion for all euro area citizens.’
PEPP ‘net monthly purchases will last at least until March 2022 and in any case until we judge that the pandemic crisis is over. It is considered very effective in containing the rise, due to high uncertainty, in government bond yields and the divergences between them. At the same time, the smooth functioning of the monetary policy transmission mechanism is ensured in all euro area countries. The effectiveness of the programme is mainly due to the pioneering flexibility in the composition of the Eurosystem's securities markets.’
‘… in the discussions on the strategy it was considered appropriate to build on the lessons learned from previous crises and to recognise the effectiveness of direct and meaningful monetary intervention through less conventional tools. That is why the recast of the strategy states that, in recognition of the policy interest rate threshold, the Governing Council will use these tools on a case-by-case basis, will continue to respond flexibly to new challenges and will consider new policy instruments when necessary.’
‘For macroeconomic stabilisation to be successful, monetary policy needs to continue to be complemented by targeted and coordinated fiscal measures.’

Kazāks (Latvijas Banka):

(8 December) ‘At the current moment, we don’t know how the Omicron variant will develop. Unless it spills over into significant and large negative revisions to the outlook for growth, I don’t see that March -- which the market has been expecting for some time and which we’ve been communicating in the past -- should be changed. If in February we see that it’s painful then of course we can change our views and that’s the issue of flexibility. In my view, it’s possible both to restart PEPP or increase the envelope if it turns out to be necessary.’
‘To exactly what level will [inflation] land in 2023-24, of course, there’s lots of uncertainty … my baseline remains that it slides to below 2%.’
‘At the moment we simply know too little about omicron [to make commitments]. I see it important to remain data-driven and make our decisions step by step. So react to the data, rather than preempt decisions when uncertainty is way too high.’

Scicluna (Central Bank of Malta):

(3 December) ‘In the international financial markets there is no consensus whether the current inflation is transitory and that it will retreat to levels below Central Bank inflation objectives over the medium term or not. In any case, at the ECB, it is fair to say that the jury is still out. Within a fortnight at the Governing Council we should have a clearer picture of the outlook and the appropriate monetary policy decision is then taken.’

Panetta (ECB):

(24 November) ‘[S]o long as higher short-run inflation does not feed into inflation expectations and wage and price-setting in a destabilising way, monetary policy should remain patient. We should not exacerbate the risk of supply shocks morphing into a demand shock and threatening the recovery by prematurely tightening monetary policy – or by passively tolerating an undesirable tightening in financing conditions. We should remain focused on completing the recovery, returning GDP to its pre-crisis trend, as the condition for achieving self-sustained inflation at our target in the medium term. To this end, we should keep using all of our instruments for as long as warranted, with the necessary flexibility to support the transmission of our policy stance throughout the euro area on its uncertain path out of the pandemic.’
‘The downside risks to economic activity may be growing. We should monitor the risk that a long-lasting negative supply shock prevents the economy from reaching full capacity. Globally, supply bottlenecks now appear to be slowing the recovery. That drag is affecting forward-looking indicators of activity in the euro area, which are plateauing and in some cases already pointing downwards. It may soon become visible in actual GDP growth. Supply-side disruptions and the uncertainty regarding the economic outlook also look to be weighing on the already unsatisfactory recovery in investment in major economies. In parallel, the rise in energy prices will likely pull back demand in the euro area: a 10% rise in oil prices typically reduces consumption by 0.28% over three years, and oil prices have risen by around 60% in 2021. Since energy demand has a low price elasticity, this could spill over into lower spending on non-essential services. In addition, rising energy prices may have important effects on firms’ employment decisions.’
‘[W]e should not forget that, regrettably, another major wave of infections is under way in the euro area, triggering renewed restrictions, some already introduced, with others potentially on the way. This could weigh on economic activity and, in particular, consumer confidence, further holding back wage demands.’
‘So, if the sources of higher inflation today do last longer, there is little or no evidence at this stage to suggest that they would feed into wage-price spirals or a de-anchoring of inflation expectations in the euro area. There are, instead, signs that they could weaken the recovery and reduce underlying inflation pressures. And we should not forget that in the last decade insufficient domestic demand growth in the euro area resulted in inflation that was persistently below our aim and in the accumulation of a price level gap that remains significant.’
‘All in all, on the basis of the available information, there seems to be little chance of sustained inflation above 2% in the medium term.’
‘[T]he surge in the number of infections and the renewed introduction of pandemic-related restrictions in some euro area countries mean that the pandemic is not over yet. … an inappropriate, sharp reduction of purchases would be tantamount to a tightening of the policy stance. Net asset purchases … need to be calibrated to help ensure we reach our target, avoiding an undesirable, premature increase in long-term interest rates. … so that we can continue to transmit our policy impulses across the entire euro area, the flexibility that has served us well in past months should become an integral element of our asset purchases. This will enable us to act – if necessary – in an environment where the exit from the pandemic may have asymmetric effects. We should not tolerate any financial fragmentation which could impede the transmission of monetary policy throughout the euro area.’

Makhlouf (Central Bank of Ireland):

(23 November) Policy tightening while the recovery is still ‘highly uncertain and incomplete … could prove more costly than the risks stemming from the current spike in inflation’ and ‘could slow economic growth unnecessarily, which could prevent inflation reaching our target in a sustainable manner.’
‘[T]he judgement that an immediate monetary policy response is not warranted – that patience is an important and worthwhile virtue – is reasonable and in the present circumstances correct’, but there are also ‘risks to the inflation outlook.’
‘If current trends in inflation persist, the case for monetary policy action becomes stronger. Incoming data do not currently show evidence that would lead us to think that inflation pressures are becoming persistent, but this could evolve and we must remain vigilant and cognisant of the risks.’
Monetary policy must be data-driven and ‘prepared to respond if the evidence starts to point to a need for this earlier than we had expected. When the evidence changes, we should not hesitate to change our approach.’
‘And in the wake of the remarkable levels of uncertainty, we should also maintain optionality in our policy tools and not locking ourselves into commitments that put our price stability objective at risk.’
Forecasts are subject to ‘a remarkable level of additional uncertainty and complexity’, but ‘[o]ur judgement today is that we expect the global drivers of current inflation to recede gradually during 2022.’
Wage-price spirals of the past are ‘a world we do not want to return to and I do not expect us to do so … In addition, higher inflation rates today should be viewed in the context of a prolonged period of too-low inflation in the euro area. … Recent data for the euro area does not suggest, at least thus far, that higher inflation in 2021 is feeding into broad-based higher wage demands, although the upheaval in the labour market makes it more challenging than ever to extract timely and accurate insights from the data.’