They Said It - Recent Comments of ECB Governing Council Members
23 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)
21 June 2023
‘If then the wages are even increasing faster than we thought […] then I think there is a risk that this could turn into a wage-price spiral, and this is why we have to be very attentive and have to monitor this very carefully. If you look at our most recent staff projections, you can see that there, the assumption is that firms are going to absorb the largest part of this increase in wage costs, in particular, through their profit margins. But of course, that is uncertain, and so there are risks to this assumption that absorption is going to take to take place.’
‘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)
23 June 2023
‘So, between now and our next meeting in July, let’s see how inflation develops in the month of June. Let’s see what we learn about how our monetary policy is affecting the economy. And these are the factors which do mean it really is a step-by-step process. And the decision last week was, it makes sense to take another step. And we’ll continue this step-by-step process in July, in September, each time deciding, is it sensible to continue to increase interest rates, or at some point is it sensible to say, we’ve done enough, and let’s see what we’ve done so far, whether that will be enough?’
‘…even though the energy prices are reversing, even though the pandemic bottlenecks are easing, it’s not the case we come back to 2% overnight. So, what I would say is our analysis strongly indicates that with our monetary policy, with the reversal of these original inflation shocks … you know, we have a high degree of confidence that inflation will fall back towards 2%. But in that transition, there will be a phase like we have right now, where, if you like, that return to 2% goes more slowly because of the need, the inevitability of wages needing a period to catch up. So, again, for me it’s kind of an adjustment phase. It’s a catch-up phase. It is not a spiral.’
‘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)
22 June 2023
‘The relevant policy rate – the rate on the deposit facility – is now 3.5%. I don't think that's a high enough level yet. As mentioned, how far interest rates actually have to rise will depend on the incoming data. One thing is clear: once we have reached the highest point, key interest rates will remain at this level for as long as necessary. Breaking inflation requires vigorous action as well as perseverance!’
‘We will see in the next weeks and months that inflation will come down; in this situation it would be [a] first order error to give up too early.’
‘It was pretty easy [...] to do monetary policy [up to now]. Now the art of monetary policy is starting… now it's getting a little bit more complicated.’
‘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)
20 June 2023
‘With an increase of 400 basis points (4%) in eleven months, we have made most of the progress. Our rates are now tending towards their asymptote, and any additional limited increases will depend on the inflation data observed.’
‘The transmission lag of our monetary policy implies a very simple thing: the main thing is the duration during which we will remain at the “terminal rate”, more than its level. The length of the route matters more than its highest point. The necessary virtue is perseverance. Our monetary strategy is working: with a rate hike cycle nearing its end this summer and a transmission lag of around two years, inflation should be back towards 2% in 2025, and perhaps even as early as the end of 2024. This is our forecast, but it is also our commitment, barring any new external shock.’
‘… 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)
23 June 2023
‘These [newest] inflation projections are similar to those of March. However, expected core inflation has been revised upwards, mainly as a result of the positive surprises observed in this component in the first few months of the year and an increase in the expected path of unit labour costs. In any event, uncertainty remains very high and risks to the growth projections are mainly tilted to the downside, while risks to inflation are considered to be balanced.’
‘Looking ahead, given the high uncertainty, we have emphasised that we will continue to take our decisions depending on the data and, in particular, on the combined assessment of the inflation outlook, the dynamics of core inflation and the strength of monetary policy transmission. In this regard, our current assessment is that, in the absence of significant changes in the central growth and inflation scenario, we have some way to go and will have to raise interest rates again in July. It is not possible, however, to anticipate decisions beyond that meeting.’
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)
20 June 2023
‘In monetary policy, we have moved into an area that limits aggregate demand, and there is no reason for us to leave it prematurely, but to act consistently to stabilize inflation to the 2% target in the medium term.’
‘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.’
Madis Müller (Eesti Pank)
20 June 2023
‘If wage rises — which have accelerated in the euro area — remain so fast, then maybe the decline in core inflation will be slower than currently forecast. [That] could also mean that getting inflation firmly anchored to 2% over the medium term could also become more complicated. That’s something we need to follow.’
Boštjan Vasle (Banka Slovenije)
16 June 2023
‘The future decisions will also ensure that interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our target of 2%. As before, any further steps will depend on the situation at the time, in particular on the economic and financial data, developments in core inflation, and the effectiveness of our measures.’
Yannis Stournaras (Bank of Greece)
19 June 2023
‘…in the Governing Council of the ECB we have made it clear that we still have a lot of ground to cover. Further tightening of monetary policy is needed. Thus, we are called upon to consider what level of interest rates is appropriate and how long it should be maintained in order to tame inflation. There is no easy answer to this…’
‘It is therefore important to be careful in our next steps, which should be gradual and measured. We should not underestimate the risk that the effects of the monetary policy measures we have already taken will prove particularly severe when they are fully unwound. We need to curb inflation while ensuring financial stability and avoiding driving the economy into recession. This view is reinforced by the fact that the international economic and financial environment continues to be characterised by widespread and heightened uncertainty.’
‘In summary, based on the information to date, I believe we are close to the end of the upward cycle in interest rates, although we have not yet reached the end. Unless something changes dramatically, possibly in 2023 we will see the end of the increases. Inflation is already falling and will fall further when the full effects of the measures we have already taken are fully unwound. However, inflation will remain at a higher level than the price stability target for a long time and that is something we cannot afford to rest on. The future, however, is quite uncertain. I would like to remind you that no economist could have predicted the pandemic or the war in Ukraine. As John Maynard Keynes emphasised, we must study the present in the light of the past for the purposes of the future. With this in mind, our interest rate decisions will continue to be based on our assessment of the outlook for inflation, based on incoming economic and financial data, the dynamics of core inflation and the intensity of our policy transmission.’
Peter Kažimír (National Bank of Slovakia)
21 June 2023
‘We must have a high level of certainty, based on actual data, showing that we have core inflation under control in the near future. If core inflation continues to be stubborn, I think it’s logical that voices that want another increase in September will prevail.’
‘Core inflation is impacted by secondary factors — wage growth and profit margins — that could lead to a persisting price growth spiral, which we fear the most. We must act regardless of what it does to economic growth or unemployment.’
‘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)
23 June 2023
‘We must also understand the temporary nature of the inflationary crisis. The shock in international prices which was at its origin has already been reversed. It is now up to us to reflect this reversal in consumer prices, in Portugal and in Europe. Only then can monetary policy become more predictable in the coming months.’
Gabriel Makhlouf (Central Bank of Ireland)
Gediminas Šimkus (Bank of Lithuania)
20 June 2023
‘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]. 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. 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. 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.’
‘[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)
Constantinos Herodotou (Central Bank of Cyprus)