ECB’s Kažimír: Must Maintain Our Determination to Continue Vigorously for at Least Next Six Months

19 December 2022

By David Barwick – FRANKFURT (Econostream) – The European Central Bank will have to continue to show resolve for at least the next six months, Governing Council member Peter Kažimír said Monday.

In a statement issued on the website of the National Bank of Slovakia, which he heads, Kažimír said that the reaction of financial markets to last week’s monetary policy decision and its communication ‘are proof that we were understood.’

‘The direction is given and there is general agreement that this direction is necessary to anchor future inflation expectations’, he added.

The outlook for inflation, which does not yet include a return to price stability ‘even in 2025’, he said, means that the ECB should ‘continue very vigorously, and I fully agree with that.’ To get inflation back under control, ‘it will be necessary not only to move into the restrictive zone, but to stay there much longer’, he said.

‘How high we will go with the rates is impossible to say today’, he said. ‘Time and inflation will tell.’

A recession, ‘if it comes, will be short, mild and manageable’ and insufficient ‘to calm price growth and gradually return to the desired levels’, he said. ‘For us, this means the need to increase the base interest rate significantly higher compared to today.’

‘I realize that it is not pleasant and easy for people or the economy, but there is no other way’, he continued. ‘The determination to continue vigorously will have to be maintained for at least the entire next half-year.’

Kažimír complained that fiscal policy was ‘slowly but surely’ becoming one of the reasons for high inflation. While fiscal support was appropriate in principle, he said, ‘[t]he problem is that they don't do it the way it needs to be: targeted, tailored and temporary.’

Higher borrowing costs and quantitative tightening might ‘force governments to be more responsible and finally start to take the need to reduce their debts seriously’, he said.