ECB’s Guindos: Financial Instability Could Lead To Lower Growth, Inflation

26 March 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Vice-President Luis de Guindos said on Sunday that financial instability could possibly lead to lower growth and lower inflation in the euro area.

In an interview with Irish newspaper Business Post, he said the ECB’s impression was that current events in the financial sector ‘will lead to an additional tightening of credit standards in the euro area. And perhaps this will feed through to the economy in terms of lower growth and lower inflation.’

He said that ‘headline inflation will decline quite rapidly over the next six to seven months as the base effects play in favour of a rapid reduction in inflation.’

However, there remained upside risks, he said. He warned that ‘wage increases are accelerating’ in the Eurozone and the withdrawal of fiscal support could lead to an increase in inflation. China’s reopening, although positive for growth, ‘can add to price pressures’, he said.

He refused to be drawn on the ECB’s future monetary policy moves: ‘We raised rates by 50bp in March and we are open-minded with respect to the future’, he said.

The ECB was ‘data dependent’, he said. There was now an ‘additional element of uncertainty stemming from the financial sector problems in the United States and in Switzerland’ clouding the horizon. The Governing would adopt ‘a meeting-by-meeting approach’ and was ‘not pre-committing to any action.’

Regarding the takeover of Credit Suisse, and the fears stemming from the wipe-out of bondholders during the merger with UBS, he said that policymakers ‘have not seen a lot of contagion’ from the decision. The ECB’s clarifications that the pecking order is equity first and only then junior debt ‘has reduced any potential uncertainty that the decision by the Swiss authorities could have created’, he said.