ECB’s Centeno: Strong Reasons for Keeping a Steady Monetary Policy Hand

24 February 2022

By David Barwick – FRANKFURT (Econostream) – There are good reasons for monetary policy to remain steady, European Central Bank Governing Council member Mario Centeno said Thursday.

In a piece written for the Eurofi Magazine, Centeno, who heads Banco de Portugal, said, ‘Monetary policy should safeguard the transmission mechanism, while pursuing the primary objective of price stability. It should make use of the flexibility enshrined in the purchase programmes, guaranteeing a gradual pace for the future normalisation.’

‘This is not to say that monetary policy should abstract from the recent surge in inflation, but there are strong reasons for keeping a steady hand’, he continued.

Elevated inflation is not being driven by monetary developments that would lead to a disanchoring of expectations, he argued, and notwithstanding some excess demand, what is taking place is ‘a natural process of relative price adjustments, reflecting relative scarcities, and adjustments towards a decarbonized economy.’

Moreover, bottlenecks were probably temporary, and although strong demand would ‘eventually’ require monetary policy action, this would entail ‘welfare costs and, foremost, unsurmountable coordination aspects beyond the reach of monetary, and I dare say, fiscal policies.’

This could hamper the adjustment of the supply side and thus delay a normalization of inflation, he appeared to suggest.