ECB Has ‘Entered the Home Stretch’ of Tightening, de Guindos Says

14 May 2023

By Xavier D’Arcy – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos said on Sunday that the ECB was in the final stretch of its tightening cycle.

In an interview with Italian national business daily Il Sole 24 Ore, he said that the ECB’s programme of quantitative tightening had so far led to an increase of between 60 and 70bp in longer-term government bond yields.

‘We have now entered the home stretch of our monetary policy tightening path. And that’s why we are returning to normality, to 25bp steps’, he said.

The ECB thought that so far, its decision to wind down reinvestments under the APP had ‘led to an increase of 60-70bp in ten-year government bond yields’, he said. The decision to end reinvestments under the APP was ‘fully aligned with our monetary policy stance’ and ‘works in parallel with raising interest rates and reinforces the tightening’.

Regarding the ECB’s recent monetary policy decisions, he called the 25bp hike ‘the right decision’ and said he ‘was in favour, even during our preliminary discussions on the Executive Board.’

‘You could even say that there was virtually unanimous support for a quarter of a point’, he said.

He was ‘concerned about services prices, which account for a large share of core inflation.’ Demand for services was ‘very strong and highly sensitive to wage and labour market developments. We need to closely observe the impact of wages and services on core inflation’, he said.

Tightening had been going ‘[s]o far so good’ in his opinion. There had been ‘neither a wave of defaults, nor of fallen angels’ and ‘a strong labour market continues to offer support for coping with tighter financing conditions.’