Next Rate Decision a Choice Between 25BP and a Pause, ECB’s Centeno Says
15 April 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – The only realistic options for the European Central Bank at its upcoming meeting are to hike by 25bp or to pause, Governing Council member Mário Centeno said on Saturday.
In an interview with Bloomberg, Centeno, who is the Governor of the Bank of Portugal, said that ‘for the May decision, either zero or 25 are numbers that are feasible […] I don't see any reason whatsoever to do more.’
He said that ECB policy will remain tight ‘even when we pause’ and warned against taking the fight against inflation too far. ‘If we go back to very low levels of the natural rate, we'll be going back to pre-Covid times’, he said. ‘That's something that we don't want. We shouldn't try to undershoot on inflation.’
Whilst other ECB policymakers have expressed concerns at recent core inflation data, Centeno dismissed such warnings: ‘We target headline inflation - we don't target core […] we have to follow core closely because it may reveal pressures ahead. But so far, given the lag in which the shocks to headline are transmitted to core, both positives and negative, I still don't see reasons to be very concerned.’
Prudence would be necessary because banks around the world have been tightening policy ‘in a synchronized way that we haven't experienced before’, he said. ‘This means the impact of our action is magnified, so we can reduce inflation faster with less tightening.’