ECB’s Makhlouf: Slowdown in Growth Won’t by Itself Ensure a Return to Price Stability
16 November 2022
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Wednesday said that slower economic growth by itself would not be sufficient to restore euro area price stability.
In a speech at a research institute in Dublin, Makhlouf, who heads the Central Bank of Ireland, said that the ECB was ‘clearly very far’ from its objective and thus ‘still has a way to go to restore price stability, a pre-requisite for sustainable growth.’
Folllowing 200bp of hikes so far, ‘[t]he future direction of travel is also clear: we expect to raise policy rates further’, he said. Although ‘indicators point to a deterioration in the outlook for economic activity’, he said, ‘this slowdown in growth will not on its own be enough to ensure inflation returns to its target of 2% in the medium term.’
Makhlouf cautioned against assuming that the impact of QT would be the mirror reflection of that of QE. ‘The primary difference now is the context’, he said, pointing to the negative impact of elevated inflation on household disposable income.
‘The current macroeconomic environment is unprecedented as we tighten monetary policy while facing a higher probability of a global recession’, he said. ‘There are costs to firms and households in terms of raising rates with adverse implications for inequality. However, these factors have to be off-set against the costs of high inflation which if left untreated in a timely and effective manner, will have far greater macroeconomic consequences. That is why we at the ECB cannot allow ourselves to deviate from our primary objective, which is price stability.’