They Said It - Recent Monetary Policy Comments Made by ECB Governing Council Members

23 September 2022

By David Barwick – FRANKFURT (Econostream) – The following is a compendium of comments made by European Central Bank Governing Council members very directly related to monetary policy’s next steps. We strive to include forward-looking comments made recently enough to be current. Updates are made on a periodic basis.

Christine Lagarde (ECB)
20 September 2022

‘… adjusting the pace of rate hikes is a key tool to signal our determination to fulfil our mandate and keep inflation expectations contained. And moving faster at the start of the hiking cycle clearly conveys our commitment to bring down inflation to our medium-term target. At present, inflation expectations remain relatively well anchored across a range of measures. But there are two reasons why it would be unwise to take this for granted. … This imperative to anchor inflation expectations helps explain why, over the last two policy meetings of the ECB’s Governing Council, we raised our key interest rates by 125 basis points in total. This is the fastest change in rates in our history and it has sent a strong signal of our determination to return inflation to our medium-term target in a timely manner. This major step also took into account the unusually low level of interest rates and the limited risk of overreacting at the start of the hiking cycle. Going forward, the appropriate pace of future rate increases will be decided on a meeting-by-meeting basis. Indeed, as we have repeatedly emphasised, we will remain data dependent in all scenarios. Where rates ultimately settle, and the size of the steps that we move in, will depend on how the inflation outlook evolves as we proceed.’

08 September 2022

‘Based on our current assessment, over the next several meetings we expect to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations. We will regularly re-evaluate our policy path in light of incoming information and the evolving inflation outlook. Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach.’

‘We also decided that this was not an isolated decision, but that we would raise interest rates further. We didn't say that we would raise interest rates by 75 [basis points], as if 75 was the norm; it is not. We will determine meeting by meeting on the basis of data how we reach that level of interest rates which will actually return us to the 2% target in the medium term.’

‘Whether you call it a neutral, a terminal is obviously different but I would like to say this: what I know today is that zero is not the neutral rate and that where we are is not the neutral rate. We are heading in that direction. It takes frontloading, it will take further hikes in the next several meetings of a magnitude and at a pace that will be determined meeting by meeting and on the basis of the data that we receive.’

‘Once we have reached that level of normalisation that will enable us to have the confidence that we will return to the target of 2% in the medium term, then we will examine what is the situation on the basis of data, on the basis of what monetary policy can contribute to the economy. So we will cross that bridge when we cross that bridge. For the moment, we are actively busy and engaged in normalising our monetary policy and in making sure that we actually return to our 2% target.’

[W]hat I'm saying is that we are not on a set course, other than being driven by our goal. So our decisions will be made meeting-by-meeting, will be data dependent, be state dependent, and what I'm trying to explain is that we are not trying to mimic any other central bank, we are not transforming a frontloading exercise into a permanent exercise, but if the data on our meeting-by-meeting review suggests that we should take a high hike of our interest rates, we will do so. So it is not pre-set, it is not predetermined, and it will be decided meeting-by-meeting. But the certainty is that we are far away from the goal.’

Isabel Schnabel (ECB)
22 September 2022

‘I’m expecting that the ECB’s Governing Council will continue to increase interest rates at its next meeting. What I cannot say is how big this hike will be or at what level we will stop increasing rates. We are deciding meeting by meeting, based on an assessment of all the economic and inflation data.’

‘We see with some concern that more people expect inflation to exceed our 2% target also in the medium term. This makes it all the more important to send clear signals that people can rely on the ECB and that inflation will go down again.’

12 September 2022

‘Based on our current assessment, over the Governing Council’s next several meetings, we expect to raise interest rates further towards levels that will ensure the timely return of inflation to our 2% medium-term target.’

Philip Lane (ECB)
17 September 2022

‘Over the next several meetings, which if you like might mean the last months of this year plus going into the early part of next year, we think we’re still in a phase of bringing interest rates up to what might be called a more normal level.’

14 September 2022

‘Based on our current assessment, we expect that this transition will require us to continue to raise interest rates over the next several meetings. This policy path will dampen demand and guard against the risk of a persistent upward shift in inflation expectations. We will regularly re-evaluate our policy path in light of incoming information and the evolving inflation outlook. Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach. We took last week’s decision, and expect to raise interest rates further, because inflation remains far too high and is likely to stay above our target for an extended period.’

Luis de Guindos (ECB)
21 September 2022

Even after the Governing Council’s decision two weeks ago to hike rates by 75bp, which he said should be understood in the context of the updated staff forecasts, ‘monetary policy is still accommodative’, he said. ‘This is no longer appropriate.’

‘We need to guard against second-round effects as a consequence of an upward shift in inflation expectations.’

The Governing Council will set policy ‘in light of incoming information’, on a data-drive, meeting-by-meeting basis.

‘The number and the size of hikes will depend on the data that we will receive in the future.’

16 September 2022

‘Inflation is the main factor that we have to focus on, as we did when we decided to increase rates by 75 basis points. 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.’

15 September 2022

‘Our future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach. Importantly, we need to guard against second-round effects such as the risk of a persistent upward shift in inflation expectations.’

‘Monetary policy needs to be focused on price stability and on delivering our inflation target over the medium term. Determined action is essential to keep inflation expectations anchored, which in itself contributes to delivering price stability and avoids second-round effects in inflation. The main asset that central banks have is credibility, and this asset becomes even more important in times of high uncertainty.’

Pablo Hernández de Cos (Banco de España)
19 September 2022

‘Ultimately, our forthcoming decisions will be based on the new information available to us and its implications for the achievement of our inflation objective over the medium term, consistent with the "meeting-by-meeting" approach we have adopted. In any event, interest rates should reach a level that allows us to ensure a progressive convergence to our medium-term inflation objective, and the speed at which we reach that level will be conditioned by the same objective.’

Joachim Nagel (Bundesbank)
18 September 2022

‘If the data trend continues, more interest-rate increases have to follow -- that’s already agreed in the Governing Council. We have to be determined, in October and beyond.’

‘We must bring inflation back under control. We mustn’t let up, even if the economy worsens.’

17 September 2022

‘We’re still very far away from interest rates that are at a level that is appropriate given the current state of inflation. More needs to happen, rates have to go up -- by how much is still to be determined.’

‘We’re still a good way off’ from the neutral rate.

François Villeroy de Galhau (Banque de France)
15 September 2022

‘The later we react, the stronger we would have to act.’

14 September 2022

‘I believe that in the euro area R* can be estimated as below or close to 2% in nominal terms, and we could be there by the end of the year. Until then, we definitely have to act, in a determined but orderly way.’

09 September 2022

‘[W]hat about the next move? Let me be clear: we have our hands completely free. Nobody should speculate that this will be the magnitude of the next step – we did not create a new “jumbo habit” –; nor that we simply must emulate other important central banks. We obviously go in the same direction as them, but not necessarily at the same speed or with the same final level: because the nature of inflation has its differences on both sides of the Atlantic, the monetary answer has its differences too. [A]nd this brings a second frequent question: what about the destination of the journey? Frankly, it’s too early to tell: we know the final rate of inflation, 2%; but we don’t know yet the “terminal interest rate”, or the policy rates that will ensure a timely return of inflation to our target, while seeing no reasons for increased expectations on these. Let me rather give some light on the first part of the journey, the normalisation till neutral rate; for sure it’s unobservable, but this one can be estimated, in the euro area at below or close to 2% according to me. I sometimes use a simple metaphor: as long as it is about lifting off the accelerator, we have to act for sure, in a determined but orderly way, and we should be there by the end of the year. Afterwards, the question could come of pressing the brake, and tightening if needed: but this part of the journey remains today an open question, and will deserve further assessment and reflection, in due time. Let me only stress one last and obvious point of yesterday’s decision: it marks the return of interest rates in positive territory. This historical step brings with it multiple dimensions that need to be revisited: on our operational framework, on our TLTRO operations, on our remuneration mechanisms of bank’s reserves. This is a matter that, as Christine Lagarde said yesterday, we will take up without delay.’

Mārtiņš Kazāks (Latvijas Banka)
23 September 2022

‘Interest rates have to go up. In the next few meetings, we will definitely raise them.’

Klaas Knot (De Nederlandsche Bank)
09 September 2022

‘In response, the ECB rallied to raise policy rates to calm down the business cycle and keep inflation expectations anchored. We will continue doing so until the inflation outlook has stabilized around our 2% target in the medium term.’

Olli Rehn (Bank of Finland)
16 September 2022

‘[E]lements of expectations formation that rely not on forward- but backward-looking information can make it harder to return to target, if inflation becomes entrenched. This obviously means that there is no room for complacency in monetary policymaking. And indeed, in our meeting last week we decided to raise policy rates significantly in order to frontload the transition from highly accommodative rates towards levels that will ensure the return of inflation to our symmetric 2% target over the medium term. On the other hand, fears over adverse wage-price dynamics and fiscal dominance should not be exaggerated at the current juncture. Anyway, together with the many other uncertainties and unknowns, these factors call for a consistent and steady tightening cycle. In essence, we have been exiting a period of forward guidance and are entering a period of making decisions meeting by meeting, on the basis of incoming data, guided by our current monetary policy strategy.’

Madis Müller (Eesti Pank)
20 September 2022

Borrowing costs are still ‘in the historical comparison relatively low.’

‘If we try to evaluate the level at which interest rates really start to put the brakes on economic growth then we are actually a significant step away from this still. Slowing inflation takes quite a long time.’

Boštjan Vasle (Banka Slovenije)
17 September 2022

‘We are planning several more consecutive interest rate hikes. But what that height will be - we have the next meeting in six weeks, then another before the end of the year, and soon after that in early 2023 - will also depend on how quickly inflation starts to moderate. I'm currently estimating somewhere around 2%.’

09 September 2022

‘[W]e expect further increases in interest rates in the future as well, whereby the size of the increases will depend on the medium-term inflation outlook. Increases in interest rates and their impact on financing conditions will contribute to the fact that the current inflationary pressures will not be extended beyond the medium term. The objective of the members of the ECB Council is for inflation to stabilize at 2% in the medium term.’

Yannis Stournaras (Bank of Greece)
09 September 2022

‘We want to approach what our models suggest is the neutral rate. We are not yet at the neutral rate which is much higher than zero. It may be around 1.5%, or even 2%.'

‘We have started normalising, and it is a serious normalisation. It should not be taken lightly. We may have large losses in output and we should be cautious.'

Peter Kažimír (National Bank of Slovakia)
09 September 2022

‘All in all, from my point of view, the risks for inflation are clearly to the upside and for economic growth to the downside. July's and yesterday's rate hikes (as well as those that will follow in the near future) are our answer. The answer is how to respond to existing risks and ensure that prices do not rise at this rate permanently. Many speculate, will speculate about where we see the neutral rate, or to what level we will increase the rates. Discussions on this topic are premature. We will find out how deep the river is only when we ford this river and we are still quite far from the other bank. The priority now is to vigorously continue the normalization of the monetary policy setting. There is no time to procrastinate. Being austere at a time when the world economy is slowing and the risk of a recession in the Eurozone remains is not easy. And sure, not everyone will applaud us. But there is no other way. It is necessary for price stability, for rebalancing the economy, it is necessary for a return to prosperity.’

Mario Centeno (Banco de Portugal)
15 September 2022

‘[M]onetary policy is credible and … high real interest rates are not seen as necessary to counter inflation. In other words, the effects of the unprecedented supply shocks will dissipate without imprinting higher inflation expectations. The contrafactual would be a clear tightening, or even too abrupt a normalisation. That could unwarrantedly destabilize the transmission mechanism and the real economy, making it harder to achieve the inflation target beyond the short run and reducing economic activity. A scenario of going back and forth in the decisions would undermine the credibility of monetary policy. Monetary policy must remain predictable and acting at the margin in as small steps as possible.’

12 September 2022

Policymakers must ‘remain predictable and acting at the margin in as small steps as possible’.

‘The worst-case scenario for a policy maker is to be seen going back and forth in decisions and going after the data.’

‘It [frontloading] means that we’re acting faster than we envisaged in June or even in July. That doesn’t mean that we’re moving the end point up.’

‘The policy rates are clearly the best instrument for us to deal with the present situation.’

Edward Scicluna (Central Bank of Malta)
12 September 2022

Coming rate hikes are unlikely to be as large as last week’s 75bp rate hike.

Peter Kažimír (National Bank of Slovakia)
09 September 2022

‘All in all, from my point of view, the risks for inflation are clearly to the upside and for economic growth to the downside. July's and yesterday's rate hikes (as well as those that will follow in the near future) are our answer. The answer is how to respond to existing risks and ensure that prices do not rise at this rate permanently. Many speculate, will speculate about where we see the neutral rate, or to what level we will increase the rates. Discussions on this topic are premature. We will find out how deep the river is only when we ford this river and we are still quite far from the other bank. The priority now is to vigorously continue the normalization of the monetary policy setting. There is no time to procrastinate. Being austere at a time when the world economy is slowing and the risk of a recession in the eurozone remains is not easy. And sure, not everyone will applaud us. But there is no other way. It is necessary for price stability, for rebalancing the economy, it is necessary for a return to prosperity.’

Gabriel Makhlouf (Central Bank of Ireland)
14 September 2022

‘The current high rate of inflation is eroding the real incomes of households and reducing economic activity. By ensuring that inflation returns to the target of 2 % over the medium term, the recent monetary policy actions by the ECB can contribute to alleviating the drag on households’ real income and create the conditions for a return to sustainable growth and improved living standards. A pivot to further tighten monetary policy has been necessary, as history has taught us that these issues will only be exacerbated if we delay action. Raising interest rates is absolutely necessary as persistent inflation is damaging to macroeconomic stability and the community’s longer term living standards.'

Gediminas Šimkus (Bank of Lithuania)
13 September 2022

‘Inflation trends are strong. Therefore, at least a 50 basis-point increase is needed’ in October.

‘Data doesn’t change that fast, so we need to respond.’

Constantinos Herodotou (Central Bank of Cyprus)
12 September 2022

‘When the degree of inflation persistence is unclear, effective policy suggests a strong reaction to deviations from the target in order to limit the risks of inflation continuing to be high for an extended period. The risk of high and persistent prices, together with signals of tightening in the labour market, create an environment which makes it possible for higher inflation expectations and higher prices to become entrenched. These are strong signals that dictate forceful action to safeguard against inflation.’