ECB’s de Guindos: Transmission to Real Economy Is Key To Determine Future Decisions

2 October 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Monday said the ECB's future decisions would be determined by the intensity of policy transmission to real economy.

In an interview with the Financial Times also posted on the website of the ECB, de Guindos said that ‘[t]he key point that will determine our future decisions is how intense the transmission of our monetary policy will be to the real economy, and indirectly to inflation.’

The ECB does not want to ‘create an unnecessarily painful recession’, but the completion of transmission requires patience, he said.

'We do not at all want to create an unnecessarily painful recession', he said. 'We must bring inflation to our definition of price stability while simultaneously trying to minimise the pain that could create in terms of a slowdown in the economy. This is, at the end of the day, a very delicate balance.'

Should policy transmission not be complete, he said, 'then we should be a little more patient. If the transmission is much closer to completion, then we should consider the next steps to guarantee that inflation converges to our target.'

De Guindos said that the recent rise in the oil price made the task of reducing inflation more difficult and that he was concerned about the impact it could have on inflation expectations for households and corporates.

'I would not say that it is a game changer', he said. 'But my concern is that the rise in the oil price could have a detrimental impact on inflation expectations for households and corporates.'

The ECB foresaw a continued slowdown of inflation over the coming months, he reminded. 'But we need to monitor it very closely because the elements that might torpedo the disinflation process are powerful', he said.