ECB’s Visco: Not Time Now Really to Ask for Higher Interest Rates Than We Had Foreseen

25 July 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank will determine the appropriate magnitude of any future rate hikes when the time comes, ECB Governing Council member Ignazio Visco said on Monday.

In an interview with Bloomberg, Visco, who heads Banca d’Italia, rejected a colleague’s call to consider another relatively large move in September following last week’s greater-than-expected 50bp hike.

‘Well, obviously we have decided to take decisions meeting after meeting, so there is no way now to say whether it will be appropriate 50, 25 or whatever’, Visco said. Last week’s frontloading ‘does not mean that we are not going to proceed in a gradual way’, he said.

‘Graduality means moving step by step, not being very slow’, and this is what the ECB is doing, he said. ‘It is not time now really to ask for higher interest rates than we had up to now foreseen.’

The decision in favour of 50bp was ‘not difficult’, according to Visco, who defended it by noting that post-June, ‘inflation persistently was maintained at the higher level than it was expected, not only by us; by markets, by futures and so on.’

‘So in this sense it was simply a way to, as I said, frontload our normalisation path’, he added.

Asked where rates would peak, Visco said that wages and expectations were evolving ‘more or less in relatively positive way’ in the face of higher energy prices. The ECB recognises the potential for them to increase, which is why policy normalisation is occurring, he said.

‘But actually now we are in a very different situation still with respect to other areas of the world there is no major demand pressure yet, and the path of interest rates rises of normalisation is going to somehow counter the risks’, he said. ‘I don’t see it really getting out of our hands. It seems to me that we are proceeding as expected. And obviously, the TPI is an instrument now that will help us to avoid excessive volatility, disorderly movements in markets following our decisions, and somehow means understanding what really the risks are.’