Visco Says ECB Should Be Risk-Aware But Can Proceed with Caution on Rate Hikes
4 February 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Ignazio Visco said on Saturday that central bankers must carefully balance the risks associated with tightening monetary policy but called for the ECB’s monetary policy tightening to proceed ‘with suitable caution’.
Speaking at the ASSIOM FOREX Congress in Milan, Visco, who heads Banca d’Italia, said that Eurozone policymakers should take into account the impact of the steps already taken in the fight against inflation.
He recommended ‘careful consideration of the implications for the economy and for the inflation outlook of the measures already adopted as well as of the information on how they develop.’ It is necessary for the ECB to ‘balance the risk’ of tightening too much with that of not going far enough, he said.
‘An excessively gradual recalibration […] could cause inflation to become entrenched in expectations and in wage-setting processes’, he warned, which would negatively affect monetary stability.
He also saw a risk of ‘monetary conditions becoming too tight’ and of the ECB ‘doing too much, leading to a fall in income and employment and undermining financial stability, with repercussions for price dynamics that are no less serious.’
‘I believe equal weight should be assigned to both risks’, he said, calling for central bankers to ‘strike the right balance’.
The ECB’s task during the current period of high inflation is ‘particularly delicate’, he added.
He noted that ‘there are currently no signs of a price-wage spiral being triggered in the euro area as a whole’, which would require a tougher monetary policy response. Long-term inflation expectations also remain well-anchored ‘at levels consistent with the 2% medium-term price stability target’, he said.
On the outlook for the Italian economy, the ECB’s rate hikes would be ‘broadly manageable for Italy’s public finances’, he said, whilst quantitative tightening ‘is not likely to have a significant impact on the placement or yield of government bonds’.