ECB’s Herodotou: Uncertainty Still High Despite Lower Headline Inflation, Tighter Financing Conditions

18 May 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Constantinos Herodotou on Thursday said that despite the decline of headline inflation and the ‘significant tightening’ seen in financing conditions, uncertainty remained high.

In a speech at the 2nd Mediterranean Finance Summit, Herodotou, who heads the Central Bank of Cyprus, said, ‘Currently, monetary policy is in the restrictive territory, as reflected in the significant tightening of the financing conditions.’

‘Even though headline inflation is declining, and financing conditions are tighter, there is still a lot of uncertainty’, he continued. ‘This is the main reason that a data-dependent approach on future policy rate decisions is required - in order to assess the headline and core inflation outlook on the basis of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.’

‘Policy rates need to be brought to and maintained at the necessary restrictive levels to achieve a timely return of inflation to the 2% medium-term target, while the same data-dependent approach will determine the potency and duration of this restriction’, he added.