Visco Calls for Caution From ECB as Real Economy Starts To Feel Impact of Hikes
13 May 2023
By Xavier D’Arcy – FRANKFURT (Econostream) – The European Central Bank needs to be cautious as it approaches its next monetary policy decisions, as monetary tightening is beginning to pose risks to the real economy, ECB Governing Council member Ignazio Visco said on Saturday.
In an interview with Italian TV channel Rai News 24, Visco, who heads the Bank of Italy, said that ‘if there is one thing I would recommend, it is to be cautious in how we judge the prospects for future monetary policy moves. There is a very high level of uncertainty.’
‘The risks to the real economy are starting to be felt, and banks are more cautious at the European level, not just in Italy’, he said. He said that ‘the tightening of loans and credits is beginning to contract consumption and investments.’
Monetary policy transmission was ‘taking place as expected’, he said, though the ECB’s policy measures ‘need time to propagate’.
The slowdown in credit to businesses and households in recent months was ‘a response to two issues’, in his opinion: ‘The increase in interest rates, which has affected demand, and the supply of credit linked to financial tensions that have emerged in recent times.’
‘In the seven times we have raised interest rates, we have gone from an increase of 75bp to 50 and then 25. This is the trend in terms of magnitude, but the direction continues to be fighting against the risks of inflation becoming entrenched’, he said.
He said that the ECB made decisions ‘based on the data that gradually become available: the factors of inflation, the state of demand, and also the speed of the decline in inflation in the medium term. We need to understand how the economy is performing and how effective monetary policy is.’