They Said It - Recent Comments of ECB Governing Council Members
19 June 2023
By David Barwick – FRANKFURT (Econostream) – The following is an overview of recent comments made by European Central Bank Governing Council members. We include only comments made since the Governing Council meeting of 15 June, but earlier comments can still be seen in versions up to that of 9 June.
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Christine Lagarde (ECB)
16 June 2023
‘We also confirmed that our future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary. In other words, we still have ground to cover. Barring a material change to our baseline, it is very likely that we will continue to increase rates at our next policy meeting in July. Thereafter, we will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. In particular, our interest rate decisions will continue to be based on our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.’
‘Are we done? Have we finished the journey? No, we're not at destination. Do we still have ground to cover? Yes, we have ground to cover. I can even go further than that: I can tell you that, barring a material change to our baseline, it is very likely the case that we will continue to increase rates in July, which probably doesn't come as a big surprise to you, but that's what I'm telling you. And this is so because we are determined to reach our target in a timely manner, and to continue to apply the principles that we have applied today: data dependency, the three elements of the reaction function, and moving meeting by meeting. Obviously, we are better informed at each projection meeting which happens, as you know, in June, in September and later.’
‘We revised 2023 and 2024 and ultimately to 2.3% [in 2025] which moved by 0.1 from the previous projections [of 2.2%]. I think on the basis of that you can easily conclude that we are not satisfied with the results of that inflation outlook – which is only one of the three components that we look at. That is the reason why we are making the monetary policy decision that we make today, and why we are thinking that, unless there was a material change to the baseline, we would again hike interest rates in July. I don't want to comment about the terminal rate. This is what markets are considering. The terminal rate is something that we will know when we get there because it is not what is driving our analysis and our deliberations. What is driving it is the ultimate destination, which is the 2% inflation. That's what we want and there are lots of components that come in to help us arrive at the 2% target.’
‘…in a way we don't have to ask ourselves whether we are at neutral rate or not. We believe that we have ground to cover. So, we are not where we want to be if we want to reach our target. In terms of having to pause or having to skip: as I said, number one, we have not discussed it at all and we have not begun thinking about it because we have work to do.’
Isabel Schnabel (ECB)
19 June 2023
‘All in all, the risks to the inflation outlook are tilted to the upside, reflecting both supply- and demand-side factors. The question is how monetary policy should take such risks into account. The IMF has recently issued a clear recommendation: if inflation persistence is uncertain, risk management considerations speak in favour of a tighter monetary policy stance. … the fact that we underestimated inflation persistence last year raises the probability that we are also underestimating inflation today. These findings confirm new research showing that a narrow reliance on projections can lead to large policy mistakes, and that, as a result, giving more weight to observable data, in particular at times of high uncertainty, can improve the quality of policy decisions. Taken together, this means that we need to remain highly data-dependent and err on the side of doing too much rather than too little. Risks of both a de-anchoring of inflation expectations and weaker monetary policy transmission suggest that there is a limit to how long inflation can stay above our 2% target. We thus need to keep raising interest rates until we see convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to our 2% medium-term target in a sustained and timely manner.’
Philip Lane (ECB)
19 June 2023
‘September will be decided in September, July will be decided in July. It looks like another hike in July will be appropriate. And then basically we will see in September, that’s months away in terms of all the data we’re going to learn about between now and September, we’ll also have a full-scale forecasting round.’
Joachim Nagel (Bundesbank)
16 June 2023
‘All in all, despite current inflation rates that are significantly down on their peaks in October, we still have a long way to go to reach our inflation target. Moreover, inflation uncertainty remains high. The ECB Governing Council therefore will continue in its efforts to combat high inflation. … our job has not yet been completed. In my view, three levers must be used. First, our policy rate has to be sufficiently high. As I see it, we still have more ground to cover. We may need to keep raising rates after the summer break. Second, once we have reached the peak, we will stay there until we are sure of a safe and timely return of inflation to our 2% target. And third, we have to support this interest rate policy by reducing our balance sheet.’
16 June 2023
‘We are seeing a welcome decline in inflation, but we’re still far from giving the all-clear signal. … Decisive monetary policy action is key to counteracting the economic and societal risks of persistent inflation.’
François Villeroy de Galhau (Banque de France)
16 June 2023
‘… our future decisions will be data driven, meeting by meeting. Hence nobody should rush to a premature conclusion about our calendar nor about our terminal rate, and the latest market volatility seems somewhat excessive. Let me stress two elements in this direction:
• We are data-driven, we are not forecasts-driven. And recent data show that even if we are obviously still far from the inflation target, our monetary policy is at work, and is working : inflation has peaked in the euro area, core inflation has declined for the second consecutive month, and there are several other signs that underlying price pressures are softening. According to yesterday’s inflation forecast, which is a rather cautious one, inflation should be at 3 % in the euro area by the end of this year, and at 2% by 2025: we are confident that we will deliver on our inflation target in the next two years.
•We have already shown our determination on interest rates through this overall 400bp increase. We obviously covered most of the ground, and we are clearly in restrictive territory on all maturities: the key issue now is the transmission of our past monetary decisions, which is proceeding forcefully to financial conditions but could take up to two years for its full economic effects. Hence, the duration matters more than the level; persistence matters more than the peak.’
Ignazio Visco (Banca d’Italia)
Pablo Hernández de Cos (Banco de España)
Klaas Knot (De Nederlandsche Bank)
Pierre Wunsch (Belgian National Bank)
16 June 2023
Unless core decreases, ‘there’s indeed the possibility that we would hike in September. If core keeps at 5% on a yearly basis in the coming months, then we’ll keep increasing even beyond September.’
Mārtiņš Kazāks (Latvijas Banka)
Olli Rehn (Bank of Finland)
16 June 2023
‘The Governing Council’s future decisions will continue to follow a data-dependent approach. They will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the 2% medium-term target and will be kept at those levels for as long as necessary.’
Boštjan Vasle (Banka Slovenije)
Yannis Stournaras (Bank of Greece)
Peter Kažimír (National Bank of Slovakia)
19 June 2023
‘Looking at the inflation outlook for the euro area for the coming two years, a continuation of monetary policy tightening is the only reasonable way ahead. Anything else is out of the question. June’s 25bp hike it’s [sic] not the end of the road. For starters, we need to deliver another rate hike in July and move further into the restrictive territory. … Upward inflation risks are still substantial, linked to the labour market situation, food prices and, last but not least, profit margins. We’re not done. I’m waiting for September for a more comprehensive view and analysis of the cumulative effect of all our measures on inflation and the economy. Failing to do what’s necessary represents a much more significant risk than the risk of overtightening. … All in all, my baseline scenario for July is another hike. As for September action, it’s open and remains to be seen what will be done. What’s already clear today, is that we must stay resolute in our determination to combat high inflation as obliged by our mandate. Incoming data, updated inflation and economic outlook will decide our actions after the summer break.’
Mário Centeno (Banco de Portugal)
Gabriel Makhlouf (Central Bank of Ireland)
Gediminas Šimkus (Bank of Lithuania)
19 June 2023
‘[I have] no doubt about a hike in July.’
‘Keeping in mind all the uncertainties and risks, it’s still too early to assess the need for a hike in September. But we’re coming closer or we are close to the end of rate increases.’
Robert Holzmann (Austrian National Bank)
Boris Vujčić (Croatian National Bank)
Gaston Reinesch (Central Bank of Luxembourg)