Visco Calls for Cautious Approach to ECB Tightening Amidst Financial Stress
23 March 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Governing Council member Ignazio Visco said on Thursday that recent market turmoil meant policymakers needed to take a cautious approach to monetary policy.
Speaking at the 95th International Atlantic Economic Conference in Rome, Visco, who heads the Bank of Italy, said that ‘a cautious approach should guide future monetary policy decisions’ given the ‘high volatility observed in financial markets over the last few weeks […] and considering the substantial amount of tightening in the pipeline.’
This did not amount to financial dominance, he said, noting that ‘price and financial stability are two strictly intertwined goals.’
‘As the hiking cycle is progressing further, the ECB Governing Council will need to find the right balance between two risks: the risk of stopping too early […] and that of overtightening monetary conditions’, he said.
His speech mainly focused on inflation expectations, which he said were ‘substantially anchored’ in the Eurozone in the long-term. Short- to medium-term expectations, while still remaining ‘very volatile’, were ‘clearly on a downward trend’, he said.
The risk of wage-price spirals was ‘contained’ so far, he said, though he warned that ‘the requests for elevated wage increases in some euro area countries, where the labour market is tighter, should be continuously and carefully assessed.’
There were a number of factors which ‘call into question the persistence of inflation at high levels in the euro area and suggest a more gradual monetary normalisation’, he said, such as recent data on inflation expectations, the deceleration of headline prices on a 3-month annualised basis observed since October and the weakness of credit and money dynamics.