ECB’s Visco: We Will Be More Restrictive If Necessary

26 February 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Ignazio Visco said on Sunday that monetary policy in the Eurozone will be more restrictive if necessary.

In an interview with Bloomberg TV, Visco, who heads the Bank of Italy, said he couldn’t predict the ECB’s terminal rate, because that would be dependent on incoming data, though he mentioned 3.75% as a possibility.

‘Our objective is to go back to an inflation rate of 2% in the medium term.’, he said. ‘If we need to be more restrictive, we will be more restrictive.’

He said that ‘I don’t think that we can indicate now what the terminal rate is, not even if it will be 3.5%, 3.25%, 3.75%... because really it is data dependent.’

The language which the ECB was using didn’t necessarily imply further big rate rises, in his view. The word ‘significantly’, which the ECB has used in official communication to describe the extent of future hikes, ‘is a term which has a number of meanings’, Visco said: ‘My meaning is “determined” in this sense, not “large”.’

He expected a fall in inflation, given lower energy prices in the euro area: ‘If the sources of the increase in inflation recede, then really ... we should expect that prices follow, non-energy prices. If they don’t, then this calls for monetary policy being very attentive.’

On labour markets, he said that ‘in some important ... countries, they really are pretty tight. And so this may induce wage increases beyond what is compatible with a medium-term 2% inflation rate, which is our target.’

The level of interest rates was not a cause of concern, he said: ‘I believe that so far we don’t have to worry, we were in a negative region as far as real rates were concerned.’

‘If you look now at a year ahead or five-year ahead real rates, we are around zero’, he said. ‘There is nothing to be worried with real rates around zero. Especially because within all the estimates that we have, this is exactly in the area where it should be.’

‘The problem is, we should not consider a normal rate as our objective', he continued. 'Our objective is to go back to an inflation rate of 2% in the medium term.’

'I don't think that we should be excessively worried and worrying the markets and worrying the economy at large ... having a very tough face', he said. ‘I think we have to be very realistic. So, if it would be needed, we are there, and we will move interest rates’.