ECB’s Centeno: Must Be Patient To Let Our Previous Policy Steps Take Effect
27 March 2023
By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Mario Centeno on Monday called for patience in setting ECB monetary policy so as to let previous measures unfold their impact.
In an interview with Spanish national daily ABC, Centeno, who heads Banco de Portugal, said, ‘Interest rates rose very sharply from July 2022 to March 2023. Now, we must be patient to allow this 350bp increase to have an impact on inflation.’
‘It is important to watch how this increase is transmitted to the real economy’, he continued. ‘The transmission of monetary policy takes time. At the ECB we assume that decisions are driven by data, and only that allows for an accurate assessment of underlying inflationary pressures. We are always wrong when we decide before we have all the information that may be available.’
The speed of hiking rather than the current level of interest rates was a concern, he said.
‘So we have to ask ourselves if we have given the transmission mechanism enough time to act’, he said. ‘And, more worrying than that: we must ask ourselves if people, economic agents, families, companies, have had the time to adapt to change.’
The economy was adjusting to monetary policy tightening a lot better than thought, he asserted, which is why the growth outlook had been corrected upwards repeatedly.
‘We must have a little humility before what we are doing, and give people time to adjust’, he said. ‘If we want to kill inflation in three months, that will not happen and it has never happened.’
Centeno dismissed the idea of a return to negative interest rates as ‘no longer plausible.’
The Council’s decision on March 16 was a return ‘to where we always were’ in that the ECB’s strategy since the start of the hiking cycle, aside from a few occasions when it deviated from it, was to set policy meeting by meeting based on the data, he said.
As earlier this month, Centeno, three separate interviews with whom appeared on Monday, criticised noisy central bank communication.
‘…I think we talk too much and add noise to the communication’, he said. ‘And that's why people always pay attention to the moment we stop talking, because it seems that there is something left to say, something more than what we have actually said. And this devaluation of the word is terrible. … There is no reason to use adjectives and vague things that people cannot understand. You have to trust the data.’