Exclusive: ECB Insider: If Price Stability Requires Restrictive Policy, Then We Must Become Restrictive

12 September 2022

- ECB insider: ‘Wrong’ to think we would only enter restrictive territory reluctantly
- ECB insider: Must contain mid-term inflation at 2%, that is ‘the main thing’

By David Barwick – FRANKFURT (Econostream) – The European Central Bank Governing Council will not be dissuaded from pursuing price stability by the question of how restrictive interest rates have to become to do so, according to an insider who spoke to Econostream.

Asked by Econostream whether the Council would only take interest rates into restrictive territory reluctantly, this person flatly labelled such a view ‘wrong’.

‘It’s not about being restrictive or not’, he explained. ‘The main thing is that we need to contain inflation at 2% in the medium term.’

Words like ‘restrictive’, but also ‘normalising’, he dismissed as ‘just adjectives that describe in a nice way what we are doing.’

The ECB’s job however is ensuring price stability, he reiterated. If that requires that rates be hiked to the point of being restrictive, then ‘we have to do it’, he said.

ECB President Christine Lagarde, asked at Thursday’s press conference whether she expected monetary policy to become restrictive, gave a considerably more evasive answer. ‘For the moment, we normalise’, she said. ‘So we will cross that bridge when we cross that bridge