ECB’s Centeno: Cannot Hike Beyond What Inflation Requires

27 March 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Mario Centeno on Monday urged that the ECB’s monetary tightening not go beyond what was required by inflation.

In an interview with Politico, Centeno, who heads Banco de Portugal, said, ‘We are really approaching the top of this curve.’

‘We need to send a clear message that we’re going to fight inflation and that the domestic sources of inflation cannot become entrenched. In that case, we need to use interest rates, make no mistake’, he was quoted as saying. ‘But we cannot use them in a way that will have a ratchet effect on inflation, the economy and financial stability, we cannot go above what is necessary.’

As in other interviews appearing the same day, he argued that policy steps taken so far must be allowed to take effect and expressed concern about the rapidity with which the ECB had hiked. ‘It’s not so much the level of the rate, but the speed of adjustment that concerns me', he said.

Referring to forecasts calling for inflation to subside faster than previously anticipated, he said, ‘We need to reflect this in our decisions. My takeaway from these forecasts is that we really are making progress towards reaching our objective. We need to be patient.’

As to quantitative tightening, ‘[t]his process is a must, but it cannot jeopardize our main goal’, he said. ‘Our history tells us that we had to backtrack a couple of times already during processes of tightening given threats to financial stability. We cannot risk that this time. This is not financial dominance, it is feasibility.’