ECB’s de Guindos Avoids Confirming or Rejecting 75bp Hike in October

16 September 2022

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Friday declined to either endorse or refute expectations that the Governing Council would hike interest rates by another 75bp in October.

In an interview with Portuguese weekly Expresso, de Guindos said that an economic deceleration was not in and of itself the remedy for high inflation, and voiced the hope that the euro would soon stop depreciating.

Asked whether October’s Council meeting would bring another 75bp hike, de Guindos highlighted the role of the staff projections in driving monetary policy decisions.

‘Inflation is the main factor that we have to focus on, as we did when we decided to increase rates by 75 basis points’, he said. ‘Uncertainty is very high. We will be data-dependent and follow a meeting-by-meeting approach to set interest rates. We will not make any precommitments. We want to be flexible and have leeway in our decision-making.’

The Governing Council has no estimate of either the terminal or the neutral interest rate, he claimed. ‘We have not decided anything’, he said. ‘But, as the President indicated, more hikes might come in the next few months – how many times and by how much will depend fundamentally on the data – and we underscore our full determination to make inflation converge towards our definition of price stability.’

As yesterday, he stressed the need to maintain inflation expectations anchored and prevent second-round effects. Monetary policy can affect the former very quickly, making signals sent by the ECB important, he said.

‘The slowdown of the economy is not going to “take care” of inflation on its own’, he said, although it would lessen demand and thus price pressures. ‘But, simultaneously, we have to act from the monetary policy standpoint to keep inflation expectations anchored and avoid second-round effects.’

De Guindos repeated the ECB’s mantra with regard to not targeting the exchange rate.

‘Further depreciation of the euro could be detrimental to inflationary pressures’, he said. ‘On the contrary, if the euro stopped depreciating, this could be positive and support the fight against inflation. I hope that the recent depreciation trend is reversed in the near future.’