ECB’s Šimkus: Would in No Way Be Surprised If We Discuss Hiking in September

20 June 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Gediminas Šimkus on Tuesday said that he would not be at all surprised if after hiking in July, the ECB discussed a further tightening of monetary policy at the September meeting.

Speaking at a virtual event, Šimkus, who is Chairman of the Board of the Bank of Lithuania, said, ‘I think it’s pretty much clear about July’, and observed that even before last week’s Governing Council meeting, ‘I was thinking we needed at least two hikes for June and July’ to restore medium-term price stability.

‘…we’re still one quarter away from September’, he continued, noting that in addition to the updated forecasts due then, incoming economic and financial information would also play a role. But the element of judgement was also important ‘in this very uncertain environment', he said.

'But I can’t answer, and I’m very honest, what we’d need to see that we would take that or that decision’ in September, he said. ‘Because otherwise, we would have written the software and the decisions were taken automatically.’

‘What I do clearly see [is] that inflation is more sticky than we expected’, he said. ‘In a way, we are in a marathon, we are running a marathon. We … slowed our tempo because we are getting a bit, not tired, but it’s closer to the finish and we need to save our strength.’

‘What happens here is that the finish line is moved ahead, moved forward. … We need to provide very credible monetary policy to make sure that … by all means we will fulfill our mandate... So, having said all this … I would no way be surprised considering a hike in September, even [without] any major change in the data, you know, that would surprise us again.’

‘Of course, if you see more stubborn inflation, more persistent inflation, this would serve as an input into that thinking’, he continued. ‘Or, you would see a clear … deceleration in inflationary pressures, that would kind of change my tone. But it’s not only about the current inflation, it’s also about the inflation outlook, it’s very much about core inflation, and I … would say that in summer, I can’t say it peaked, it may still peak, so…’

‘And on September’s decision, I would say I would repeat what I’ve said. We need to see the … data on credits, on bank lending, on everything, but … I’d in no way be surprised to have a further discussion on monetary policy tightening in September.’

Euro area job markets were holding up remarkably well, with the unemployment rate’s historic low ‘rather surprising, given the current phase of the business cycle and ECB tightening measures’, he noted. ‘However, the resilience of the labour market is a double-edged sword’, he said, inasmuch as ‘while providing a cushion to the real economy, it’s also putting upward pressure on inflation’.