They Said It - Recent Comments of ECB Governing Council Members
5 July 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)
28 June 2023
‘[A pause] is not what we're considering at the moment. We are not seeing enough tangible evidence of the fact that underlying inflation, particularly the domestic prices, are stabilising and moving down.’
‘We are looking at as many [inflation] measurements as we can, because we want to be in sufficiently restrictive territory for long enough so that we are confident that we reach our 2% medium term target.’
‘If our baseline stands, then we also know that we will very likely hike again in in July. What about September? That I will not tell you and for a very simple reason that I just mentioned, we are data dependent. We'll decide meeting by meeting.’
‘So, faced with a more persistent inflation process, we need a more persistent policy – one that not only produces sufficient tightening today, but also maintains restrictive conditions until we can be confident that this second phase of the inflation process has been resolved. … We have not yet seen the full impact of the cumulative rate hikes we have decided on since last July – amounting to 400bp. But our job is not done. Barring a material change to the outlook, we will continue to increase rates in July. And as we move further into restrictive territory, we need to pay close attention to two dimensions of our policy. First, our actions on the “level” of rates, and second, our communication on future decisions and how that is influencing the expected “length” of time that rates will remain at that level. The Governing Council has provided orientation on both dimensions. It has stated clearly that “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”. Two sources of uncertainty affect the desired “level” and “length” of our interest rate policies. First, since we face uncertainty about the persistence of inflation, the level at which rates peak will be state-contingent. It will depend on how the economy and various forces I have described evolve over time. And it will have to be continuously re-assessed over time. Under these conditions, it is unlikely that in the near future the central bank will be able to state with full confidence that the peak rates have been reached. This is why our policy needs to be decided meeting by meeting and has to remain data-dependent. Second, we face uncertainty about the strength of monetary policy transmission. … Both sources of uncertainty will only fade away with time. And that is why we have made our future policy decisions conditional on, first, the inflation outlook, second, the dynamics of underlying inflation and third, the strength of policy transmission. But to ensure that uncertainty does not interfere with our intended policy stance – in terms of both “level” and “length” – two points are clear. First, we need to bring rates into “sufficiently restrictive” territory to lock in our policy tightening. Second, we need to communicate clearly that we will stay “at those levels for as long as necessary”. This will ensure that hiking rates does not elicit expectations of a too-rapid policy reversal and will allow the full impact of our past actions to materialise. And all the while, we need to carefully evaluate the strength of policy transmission in order to avoid an error in calibrating policy in either direction.’
‘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)
29 June 2023
‘We can see wages growing quite strongly, but inflation still dropping. Because the profitability was so high last year, in the aggregate, there is room for profits to fall to absorb some of those wage increases.’
‘We do have a 2% target, we don’t have a 3% target. There’s still going to be a lot to do to go from 3 to 2%.’
‘President Lagarde came back to it this morning, is there's a long way to go. So going from where we are now all the way to our target, in our forecasts will take a couple of years. And so this is really, if you'd like, a phase where the original shock, in terms of energy, in terms of pandemic, in many ways they're behind us in terms of the original shock. But now we are in this, if you like, adjustment phase, and that adjustment phase where wages need to catch up, where there's ongoing price adjustments across the economy, will be a gradual process. And critically, in order to make sure it doesn't take too long. And in order to make sure it doesn't become embedded indefinitely. This is why we say we need to move monetary policy to sufficiently restrictive levels for sufficiently long.’
‘What you need to allocate is essentially how the market prices risk. So in terms of their true expectation of what we might do, versus some risk factors. But let me differentiate between the longer end of the yield curve. And in many ways, having lower yields five years out of 10 years out, it is a sign of confidence that inflation is temporary, we will get back to 2% in a couple of years. And once we're back at 2%, or on our way to 2%, then easing will happen. So that is, I think, uncontested. Where I do think the market should ask itself questions is about the timing, or the speed of reversal of the restrictive policy. Because essentially, what what I'm saying to you, and this, the general message here is essentially, we will not be back towards 2% for a couple of years, we will make good progress even this year, especially the later part of the year. But it's not going to collapse to 2% within a few months. And so we will have a sustained period where rates need to remain restrictive, to make sure we don't have any new shock that takes us away from 2%. And that's I think the durability of restrictiveness is very important. So anyone who thinks we're pricing on the latest inflation number, as opposed to looking at the whole horizon of monetary policy over the next couple of years. And when I look at the horizon for the next couple of years, I don't see rapid rate cuts priced in. I don't think it's appropriate to rapid rate cuts priced in, in expectation. So maybe there's some risk story they can tell you.’
‘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.’
Luis de Guindos (ECB)
27 June 2023
‘Well, I think that July is a fait accompli. It has been indicated, and, you know, it’s quite clear. September, September will depend, you know, you know what are the factors that are going to determine what will happen in September. Will be our Bank Lending Survey, that I think that is very important, because it’s going to be an indication of how our monetary policy is transmitted to the, to the financial system and from the financial system to the rest of the economy, how, you know, the tightening of financial conditions feed through to the real economy. The second will be, you know, our projections; in September we’ll have a new round of projections. And finally, the evolution of core inflation, of underlying inflation, that I think is, you know, very relevant in the present circumstances. So, these are the three elements that we will take into consideration. But, well, I said that in July it was a fait accompli. It is a fait accompli. And September, I think that is open.’
‘Well, I think that, you know, perhaps, you know, and not, not as much as stagflation [to worry about], but I think that, you know, if you look at our projections that were released a month ago, we said very clearly that for growth, the risks were to the downside. And I think that some of these downside risks have started to materialise and are becoming much more visible. So, well, this is something that we will have to revisit in September, but the data that we are receiving now with growth, you know, this data is not very good, no, in terms that, for instance, PMIs, soft indicators, well, these kind of things indicate that clearly that perhaps the slowdown of the economy is going to continue in the second half of the year.’
‘And perhaps, you know, core inflation is going to be stickier than we believe. So, this is a combination of factors, and, because simultaneously we have, you know, a clear slowdown of the economy. Even if you believe our projections, they are a little bit below 1%, with risks tilted to the downside. But simultaneously, look at the evolution and the performance of the labour market. The dynamics … of the labour market are really very good, or impressive, both in terms of employed people and in terms of hours worked, no. So, I think that, you know, this is an element that could give rise to an increase in unit labour costs that could affect the evolution of core inflation.’
‘The latest series of interest rate hikes has been the steepest since the euro was introduced, and its effects are beginning to pass through to financing conditions, with a significant decline in the demand for credit affecting real economic activity. If this slows down, so will inflation. The finishing line is in sight.’
‘That [whether we can expect an end to interest rate hikes before the summer holidays] will depend on the data. So far, we have raised rates by 400bp and can already see the impact this is having, but we need to ensure that inflation converges and holds at around 2%, our price stability target. What happens with underlying inflation is paramount.’
‘The monetary policy measures we have already adopted will help [tame underlying inflation], as will the base effects. Prices are not going to rise as sharply this year as they did last year in response to the shock triggered by Russia’s invasion of Ukraine. It is essential that we monitor second-round effects, rising wages and the behaviour of unit labour costs. If the situation deteriorates, monetary policy will have to act more forcefully. Fiscal policy must also play a part if we are to reduce inflation.’
Joachim Nagel (Bundesbank)
05 July 2023
‘Nevertheless, in my view we have not yet reached the end of the tightening path. From today's perspective, interest rates must continue to rise. However, the question of how far interest rates still have to rise cannot be answered at the present time. Nor can we say how long they will remain high and how they will develop afterwards. That depends on the inflation trend, which is highly uncertain. Against the background of this uncertainty, we are currently refraining from giving an exact "interest rate outlook" or forward guidance in our monetary policy communication. In my view, the high degree of uncertainty concerns not only the short but also the long term. In the short term, for example, wages could rise more than expected. This would prolong the inflation wave via second-round effects. The high prices of energy, raw materials and other inputs could also be passed on to end-customers to a greater extent than implied by the current projections. Turning to the longer term, there are also some developments that could raise inflation. Let me give two examples: First, we are witnessing a geopolitical transformation that is probably unprecedented in the current century. The Russian war of aggression is a significant factor here, and there are further geopolitical tensions and overall risks of geopolitical fragmentation. Secondly, climate change and the necessary decarbonisation of the economy require comprehensive adaptation measures. The overall economic development is therefore characterised by high uncertainty. A look at history can help to draw the right lessons. The high inflation phase of the 1970s was also accompanied by geopolitical turbulence and energy supply challenges. With today's knowledge, we can say: de-anchored inflation expectations were an important reason why inflation was so stubbornly high at the time. Important lessons from that time are: Do not let inflation expectations become unanchored, do not react too weakly in monetary policy and do not ease too soon.’
‘On the Governing Council, we are acting in unison to get a grip on inflation. We will do what is necessary to bring it back to 2%. To ensure a timely return to price stability, we are working together constructively.’
‘It is not worth speculating [about policy beyond July]. We are in a very, shall I say, volatile environment, with difficult market conditions. Therefore, don't make me speculate there. ... In July there will be another interest rate move in all likelihood, and then we will review the data again in September. ... The direction is right so far, and we'll see what else might have to be done after the summer break, but we'll see when we have the data. ... I don't know the end, but I know that the direction is right. In the last forecast that we published, we are already relatively close to the 2% in 2025. Not quite there yet, but we still have a way to go. We have to show our persistence, and then we will succeed at some point, perhaps as early as 2025, in getting relatively close to the 2% again.’
‘So underlying inflation is more persistent than the headline rate decline suggests. We have been missing our target of 2% for two years now. And the latest forecast of the Eurosystem experts shows that a return to the 2% target in the near future is anything but a foregone conclusion. For the euro area, the experts expect an average inflation rate of 5.4% this year. For 2024 it will be 3.0%, and even in 2025 our mission will not be completely fulfilled. At 2.2%, we would still be above the target inflation rate. In addition, the forecast for the core rate had to be corrected noticeably upwards. For 2025, it now stands at 2.3%. In addition, upside risks to the price outlook dominate. In other words, looking at the forecast, higher rather than lower inflation rates are to be expected. For instance, unexpectedly strong increases in wages or profit margins could push up inflation over the medium term. Against this background, the ECB Governing Council decided on 15 June to raise key interest rates by a further 25bp. In addition, ECB President Christine Lagarde left little doubt in her press conference that a further interest rate step was to be expected in July. Whether key rates need to be raised further after the July meeting will be decided depending on future data developments. The way I see it, we still have a way to go. It is crucial that we bring inflation down to 2% on a sustainable basis. This requires a sufficiently restrictive interest rate level. And we will have to maintain this interest rate level - wherever it may be - for a longer period of time. In this respect, the image of the approaching interest rate summit is actually skewed. After all, climbing a peak is usually followed immediately by the descent. I prefer the comparison with Christine Lagarde's cruising altitude, which an aircraft does not leave immediately after reaching it. I can't tell you whether we'll be flying short-, medium- or long-haul. It will certainly not be ultra-short-haul. That is not sustainable either. There are economic reasons in favour of high cruising altitudes: As air density decreases upwards, aircraft consume less kerosene. However, some people feel queasy when they look at the altitude.’
‘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)
04 July 2023
‘Although inflation has passed its peak, it is still too high. According to the harmonised European index, which enables comparisons to be made with other countries, inflation is running at 6%. Our aim is to bring it down to 2% by 2025. That's our forecast and that's our commitment. The fall should continue from the second half of this year, with food prices in particular slowing down. We could return to inflation of around 4% by the end of 2023.’
‘This underlying inflation is just beginning to stabilise and this is where our monetary policy, which involves regulating interest rates, is effective.’
‘We are probably more confident of some kind of soft landing which is not immaculate, which is not without pain. We will have a significant slowdown but in our view not a recession, so disinflation without recession.’
‘…we certainly should work with less forward guidance. I wouldn’t throw it away completely but if we use it again in the future, forward guidance should be (i) state dependent and not calendar based except in the very short term (ii) indicative and not committing.’
‘In my view, transmission of monetary policy in this cycle is not weaker but slower, for three reasons: The starting point: the balance sheet of corporates as well as of households was very strong after the exceptional Covid support; Fixed rate mortgages have significantly increased in share, and are now predominant in many jurisdictions. It’s nevertheless good news for financial stability; The higher proportion of services in the economy, which are less directly sensitive to interest rates. Non-housing services now represent 49% of Core HICP basket in the euro area, compared with 41% in 2001. In a recent speech, I suggested that the lag could be up to two years. Hence, “length” is still more important than “level”, to quote the two dimensions mentioned by Christine Lagarde recently. We stated in our last Monetary policy statement 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 as long as necessary”. I think we are close to the former (levels), and should be now sufficiently patient on the latter (duration). In other words, as transmission is of the essence, so is the persistence of our monetary policy.’
‘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)
NO UPDATE
Pablo Hernández de Cos (Banco de España)
29 June 2023
‘It’s true that the new projections were showing an upward revision in core inflation, in particular for 2023 and 2024. Also, there was a slight upward revision of headline inflation for 2025. So, in the end the conclusion was that inflation would remain high for too long and that we needed more tightening. And this is why we increased rates by 25bp … during the meeting, and to a certain extent we have also anticipated that if the central scenario doesn’t change in a material way, we will be also in a position to increase rates also in our July meeting. … But that’s it. I mean, for me at least, it’s very clear that the September meeting is absolutely open in terms of whether there will be or not a necessity to tighten monetary policy more. I see things now more two-sided. On the one hand, it’s obvious that the fact that the inflation is keeping high for too long also increases the probability of having very significant or more significant second-round effects on wages and markups, something that of course is not incorporated into the central scenario, and of course if this materialises, this could lead into, to higher tightening needed in the future. But at the same time, I also see that monetary policy transmission is working, and is working in a very forceful way, and the fact that we are already observing some weaknesses in economic data in the euro area, I think in my view is also related to the fact that monetary policy tightening is already having an effect on the economy. And we know that given the size, the magnitude and the speed of the tightening that we’ve done in a very short period of time, we can also miscalibrate the potential consequences of this tightening. There might be some non-linear effects. So, we have to monitor, both, not only developments on, on core inflation, headline inflation, projections, but also the transmission of our monetary policy. And we have to be ready to react accordingly to what, to what we see, no. So, I mean, very high uncertainty should lead to data-dependency, so let’s just not enter into discussions on what the tightening could be in the, in the second half of the year. I think it’s too early to say.’
‘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)
NO UPDATE
Pierre Wunsch (Belgian National Bank)
27 June 2023
‘I think if we talk about the peaking cycle, it’s really about core. Core has been quite stable… We need to see core going down before considering any pause. So, that’s, that would be the question about when we would be maybe ready to pause. When would we, we would be comfortable with, you know, where the inflation is, we have a 2% objective. Now, you know, if it’s going down, and it’s 2.3, I guess I would be fine with that, as long as, as it’s clear that ultimately the objective is to stabilise around 2%, but if it’s a bit more or a bit less, you know, I wouldn’t care so much.’
‘We know headline is going down, but core has been persistently high. So, before considering a pause, we need to see core going down. And we have only one reading before July, so Christine Lagarde said, “Okay, the chances that we have clear signals that core is going down by, by the July meeting, you know, not that big.” We have three readings before September, so then we’ve got time. Maybe we are going to see indeed consistently core going down or, you know, whatever indication that there is a clear movement downwards for core, and then we can consider pausing. And then of course after that, the question will be when do we start reducing rates. We will need to see inflation going down consistently to target. But then I would, I would define target as around 2%. I don’t think 2% is in and by itself a magic number. It’s of course a reference in terms of the medium-term objective, but we can have a little bit of flexibility around that, you know, above or below.’
‘Over the next three readings, it should give a clear signal that core is indeed going down. If not, I’m afraid we have to do more.’
‘We’ll probably have to do more on the monetary front because fiscal is still supportive.’
‘The elephant in the room is whether we’re going to have to see some more slowdown in the economy and maybe a slight pickup in unemployment to get there. Again, it’s not in the base case, so it’s possible without that, but we might need a bit more slack in the economy to get there.’
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)
28 June 2023
‘I think we still have to hike in July, and in my view we still have to hike further post July, perhaps also in September. Uncertainty remains elevated, so any forward guidance has to be extremely cautious and not look too far ahead. That said, inflation is still high and is projected to remain high, with risks clearly on the upside. So, from today’s standpoint, interest rates are not currently restrictive enough and I think further rate hikes will still be necessary. But with uncertainty this high, our modus operandi of making data-driven decisions meeting by meeting is a very appropriate choice. We do see that monetary policy is working through the economy, leading to tighter financing conditions. However, we still have to see how this affects inflation. This is in the context of strong labour markets and the risk of sustained wage pressures. In the second half of the year, wage growth is likely to be above inflation, so that real incomes will start to recover, which could lead to yet more inflation persistence. There are many upside risks to inflation that argue for interest rates to go up higher into restrictive territory. Ultimately, we will see what we need to do in September, when we will also have new macroeconomic forecasts, in addition to the inflation readings that come out between now and then.’
‘Yes, the economy is somewhat weak, and risks to growth are on the downside. But those risks, or the weakness in the economy as currently projected, is not sufficient to significantly weaken labour markets, which means that the drivers of wage pressures and labour demand are still going to be relatively strong, which may make inflation more persistent. So, if you have uncertainty about the baseline, then you look at the tail risks. In terms of monetary policy, one tail risk is doing too little tightening and running the risk of inflation coming back. The other is raising interest rates a tad too much and bringing inflation down quickly at the expense of economic weakness. However, it’s relatively easy to provide support for the economy by cutting rates. On the other hand, if you have not raised rates sufficiently, and inflation starts to come back, then we would need to hike even more. So, I still see that the risks of doing too little are higher than the risks of doing too much. In my view, therefore, rates still need to go up to deal with inflation in one go, so that we don’t see inflation coming back. Another point is that given all the uncertainty, the longer inflation stays significantly above 2%, the more we are vulnerable to other shocks that could push inflation up further. So, returning to our price stability target is very important to me.’
‘The softness of the economy is unlikely to deal with inflation, which is still very high, with strong risks of persistence.’
‘In my view we will still need to raise rates and I don’t think that in July we’ll be comfortable enough to say: “we’re done”. I think rates will need to be raised past July, but when and by how much will be data dependent.’
‘The major problem with market pricing is the expectation of rates coming down so quickly. In my view it’s wrong and the reason is that the market must be pricing in a different macro scenario with inflation coming down much more quickly.’
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)
27 June 2023
‘At the moment we are repeating, we are constantly repeating that we will remain data-dependent. And of course, we will see what will be happening with the general economy. You already mentioned a slowdown in the economy. It’s true that it was expected. But still, there are some differences between our expectations in different parts of the economy, how the industry sector is behaving, how the services are behaving. So, we have to wait to see how the situation will develop in terms of growth prospects. Then, there will be headline inflation developments, the dynamics of core inflation, and these are all elements which will contribute to our decision in July and then later after the summer break as well.’
‘If inflation will turn out to be more persistent than we believe at the moment, of course, further action in terms of interest rates and also in other fields will be needed. But, as I said, let’s wait and see what will happen during the summer months and then have a new decision in September.’
‘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)
28 June 2023
‘If the baseline develops as we think, then perhaps yes, in July we’re going to have a hike. But September is too far away. We cannot say whether in September we’re going to have a new hike.’
‘There are good news. Inflation is falling. Past decisions will have an impact from now on as well. We also tighten our balance sheet. So, all in all, we are following the path we have planned.’
‘I don’t think that Christine said that we have a wage spiral. We are far away from that, actually. Okay, it’s true that wages are increasing, but not in a way that they are creating a wage-price spiral.’
‘Interest rates will be kept at a level that is necessary to bring inflation down. But we cannot say whether in July it’s going to be the last hike, and we cannot say now for how long the interest rates … will stay at this level.’
When do you think that being more restrictive on quantitative tightening will be necessary? When does that become the tool to use instead of rate hikes?
Okay, let’s assume that we stop hiking in July, let’s assume. … And then, we keep it at this rate as much as is necessary to bring inflation down close to the target. Also, the balance sheet tightening will also help monetary policy, but the main instrument will be the interest rate.
‘…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)
28 June 2023
‘I am a big fan of keeping communication strategies as intact as possible. So we will speak in July. On the Governing Council, we all may have scenarios. Then, we also have the data points that are made available over time. We just got worrisome data for Europe as the big decline in PMIs in the manufacturing sector and also in the services sector. The services sector is getting close to 50, which is the contractionary line for PMI. The Ifo data for Germany also came out yesterday, a lower figure and below expectations. Credit conditions have tightened significantly in the euro area as well. This is what one might expect from the current monetary policy stance. We interpret these developments and we take them on board, this is what was expected of us. So, we better be careful about producing substantial statements about the future. Also, more importantly, this goes against the strategy; if we are data dependent, why do we need to keep announcing decisions before time? I don't see one single reason for that. We know what the market expects, but these are market expectations. Not our decisions. Otherwise, we will be replaced by the markets. We have our own concerns as a group, they are debated, they are drawn into the monetary policy statement. The monetary policy statement was completely empty of any references about future decisions, apart from a very clear statement of the common understanding of the Governing Council of the need to be persistent in the tightening process. And that's something that I fully agree with. We need to bring inflation down to 2%, but we are not targeting the inflation rate in September or October 2023. We are targeting medium-term inflation. Inflation is coming down. We say that headline inflation has been 'too high for too long'. It has been too high. The 'too long' part has to be put in context. The arithmetic of the inflation path is very simple. From the moment in which headline inflation exceeded 2% to its peak, it increased by 0.018 percentage points each day. Since the moment it has peaked in October 2022, it has come down at a faster pace, 0.021 percentage points per day.’
‘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)
24 June 2023
‘On the evidence that we have at the moment, it does look like, in July, there will be another 25bp increase. Some colleagues do feel that we're likely to need further rises in the autumn. I'm just prepared to look at the evidence. I do feel that we're near the top of the ladder. Some others may feel we're further down, but we'll see.’
Gediminas Šimkus (Bank of Lithuania)
26 June 2023
‘Inflation is definitely coming down, also because … we are tightening monetary policy conditions and tightening monetary policy, and this of course has an effect on many aggregates… So, it’s going down, but it will get to our target only by 2025.’
‘I think it’s [core inflation] peaked or it’s very close to its peak … the message is that this core inflation is sticky, and there are underlying forces, pressures, such as increasing wage growth, which in a way continues pushing the inflation up or keeping the inflation higher than the monetary policy target.’
‘We cannot know what exactly will happen into the future. We can’t project it, we can’t anticipate certain events. So, I think that … we need to do as much as we need to do at this particular juncture, without thinking that, “Let’s keep this and let’s hope for something.” It’s not about hope, it’s about doing real things.’
‘It’s very clear for me that we need at least one more hike, and this is going to happen I think in July. Seeing all this, so to say, environment, and also the market expectations of the interest rate path, and also, given … the stickiness of inflation and the upside risks, I think I would not be surprised to discuss at the Governing Council a hike also in September.’
‘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)
NO UPDATE
Boris Vujčić (Croatian National Bank)
28 June 2023
‘I think that we have three sets of data that will come before September. We have to carefully look at them. … We will look at all three and decide. I think that in these circumstances with lots of uncertainty, more weight should be put on the observables, rather than unobservables, which means to look at what’s happening with the core inflation and what is happening with the credit growth in terms of the transmission, and then we will … decide. I think it’s very open; we can hike further or, if we see a softening of the … data, inflation particularly, we might decide different. … I think that given the persistence of the inflation, we do realise that there might not be a pause in September, and I think this is what you hear from the Governing Council members more and more, and this is, to me, not a surprise. I did not expect really much of the softening of the inflation data through the summer.’
Gaston Reinesch (Central Bank of Luxembourg)
NO UPDATE
Constantinos Herodotou (Central Bank of Cyprus)
NO UPDATE
Edward Scicluna (Central Bank of Malta)
28 June 2023
‘So, it’s a question of where to stop now, and whether the, you know, the restriction could come by hiking up further and further until you, you sort of kill the beast, so to speak, or else just be restrictive for longer, be patient. … If, you know, you think by hiking the risks of, you know, of creating so much financial instability, a bigger recession, while if you’re restrictive for longer, you manage to obtain the same effect, then definitely I’ll go for that one. You know, you be more cautious.’
‘On our books we can see that definitely in July, we will continue. Then we will see there, of course, the biggest question. I don’t think by then we would say, “Ah, you know, there we are, we’ve reached it.” So, it’s a question of whether to hike further or else that rate would be, if not, you know, … that point, but at least very close to it, in which case you’d keep that for longer and watch. We’re saying data-driven and all that.’
END