ECB’s de Guindos: Exceptional Policies Should Be Gradually Normalised; Inflation Will Guide Us

29 July 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Friday said that pandemic policies should be normalised and that the ECB would strive for price stability on the basis of inflation, notwithstanding slower growth.

In an interview with Estonian daily newspaper Postimees, de Guindos said the chief motivation for last week’s larger-than-expected rate hike was inflation’s ongoing acceleration in June.

‘From now on, we will analyse the situation within the Governing Council on a meeting-by-meeting basis depending on the data we receive’, he said. ‘As the effects of the pandemic fade away, the exceptional fiscal and monetary policies that were needed should be gradually normalised.’

De Guindos conceded that ‘the outlook is complicated right now’ with slower growth apparent even as inflation is set to stay elevated.

‘It is important to bear in mind that the ECB’s mandate is to maintain price stability at 2% over the medium term, to which we are fully committed’, he said. Therefore, the main factor that will guide our decisions will be the evolution of inflation.’

The ECB hoped never to have to use its new anti-fragmentation tool, but would ‘not hesitate’ to do so if necessary, he said.

Southern European economies were more competitive than earlier, with fiscal reform underway, macro imbalances reduced and a stronger institutional framework, he said.

De Guindos reminded that the ECB had no exchange rate target.

‘Undoubtedly, the depreciation of the euro has been one of the factors behind the high inflation and the rise in energy prices denominated in euro’, he said. ‘The exchange rate was of course considered in our discussion last week, as we are aware of its impact on the evolution of inflation.’