They Said It - Recent Comments of ECB Governing Council Members
30 October 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 26 October, but earlier comments can still be seen in versions up to that of 25 October.
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Christine Lagarde (ECB)
26 October 2023
‘The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September, including due to strong base effects, and most measures of underlying inflation have continued to ease. Our past interest rate increases continue to be transmitted forcefully into financing conditions. This is increasingly dampening demand and thereby helps push down inflation. We are determined to ensure that inflation returns to our 2% medium-term target in a timely manner. Based on our current assessment, we consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to this goal. Our future decisions will ensure that our policy rates will be set at sufficiently restrictive levels for as long as necessary. 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 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.’
‘The euro area economy remains weak. Recent information suggests that manufacturing output has continued to fall. Subdued foreign demand and tighter financing conditions are increasingly weighing on investment and consumer spending. The services sector is also weakening further. … The economy is likely to remain weak for the remainder of this year. But as inflation falls further, household real incomes recover and the demand for euro area exports picks up, the economy should strengthen over the coming years. Economic activity has so far been supported by the strength of the labour market. T… At the same time, there are signs that the labour market is weakening. Fewer new jobs are being created, including in services, consistent with the cooling economy gradually feeding through to employment.’
‘In the near term, it [inflation] is likely to come down further, as the sharp price increases in energy and food recorded in autumn 2022 will drop out of the yearly rates. … Most measures of underlying inflation continue to decline. At the same time, domestic price pressures are still strong, reflecting also the growing importance of rising wages. Measures of longer-term inflation expectations mostly stand around 2%. Nonetheless, some indicators remain elevated and need to be monitored closely.’
‘The risks to economic growth remain tilted to the downside. Growth could be lower if the effects of monetary policy turn out stronger than expected. A weaker world economy would also weigh on growth. Russia’s unjustified war against Ukraine and the tragic conflict triggered by the terrorist attacks in Israel are key sources of geopolitical risk. This may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further. Conversely, growth could be higher than expected if the still resilient labour market and rising real incomes mean that people and businesses become more confident and spend more, or the world economy grows more strongly than expected. Upside risks to inflation could come from higher energy and food costs. The heightened geopolitical tensions could drive up energy prices in the near term, while making the medium-term outlook more uncertain. Extreme weather, and the unfolding climate crisis more broadly, could push food prices up by more than expected. A lasting rise in inflation expectations above our target, or higher than anticipated increases in wages or profit margins, could also drive inflation higher, including over the medium term. By contrast, weaker demand – for example owing to a stronger transmission of monetary policy or a worsening of the economic environment in the rest of the world amid greater geopolitical risks – would ease price pressures, especially over the medium term.’
‘…neither the PEPP, nor the remuneration of required reserves have been discussed at this meeting.’
‘So how long is “sufficiently long”? Obviously, we refer to “timely manner”, “sufficiently long”, but in the same breath I say we shall be data dependent. At this point of our fight against inflation and after ten successive hikes, now is not the time for forward guidance. Now is the time to really stick to our data dependency ‘knitting’ if I may say and we shall do so. We have acknowledged on the occasion of this meeting that our assessment is confirmed, the assessment that we had in September. All numbers, if anything, have reinforced our assessment of the situation. We have applied the three criteria that you all know well; the inflation outlook, duly informed by any information that we have, the underlying inflation in all its compositions and the strength of the transmission of monetary policy. So, we will continue to be data dependent. Your second question was essentially when and at what level do you cut? This was not discussed at all, and the debate would be absolutely premature. We have acknowledged in our review of the macroeconomic situation back in September and yet again this time around, and we all know, and you know, that labour cost, wages, profit units – the analysis of that – is critically important to determine the inflation outlook. And we will continue to accumulate data. On labour, for instance, we are going to have a wealth of numbers and data, and intelligence, when collective bargaining agreements and annual negotiations in 2024 will be completed. That is way into 2024. That is only a “for instance.” Even having a discussion on a cut is totally premature. For the moment, what we are saying is that we have to be steady, we have to hold. This is the decision of today. We are holding.’
Isabel Schnabel (ECB)
NO UPDATE
Luis de Guindos (ECB)
30 October 2023
‘The euro area economy remains weak. Foreign demand is subdued and tighter financing conditions are increasingly weighing on investment and consumer spending. The services sector is also losing steam, with weaker industrial activity spilling over to other sectors, and the impact of higher interest rates is broadening. Recent indicators point to continued weakness in the near term. The labour market has been a bright spot supporting the euro area economy and has, so far, remained resilient to the slowdown in growth. But there are signs that it is turning. While unemployment stood at 6.4% in August, the lowest level recorded since the start of the euro, fewer new jobs are being created, including in services, which suggests that the cooling of the economy is gradually feeding through to employment. Moreover, the risks to the growth outlook are tilted to the downside. Growth could be lower if the effects of monetary policy transmission turn out stronger than expected, or if the world economy weakens further. Furthermore, major geopolitical risks have intensified and are clouding the outlook. This may result in firms and households becoming less confident and more uncertain about the future, and dampen growth further. At the same time, while remaining significantly above our medium-term target of 2%, recent inflation data have been in line with our expectations, confirming that our monetary policy is working. Inflation dropped sharply to 4.3% in September and the fall was visible in all its major components. Food price inflation decreased again, but – at 8.8% – remains high by historical standards. Energy prices fell by 4.6%, but have risen again more recently, and have become less predictable in view of the new geopolitical tensions. Inflation excluding energy and food also dropped to 4.5% in September, and we see continued declines in measures of underlying inflation. However, domestic inflation remains strong owing to the growing importance of wage pressures. The inflation outlook remains surrounded by significant uncertainty. In particular, heightened geopolitical tensions could drive up energy prices and higher than anticipated increases in wages could drive inflation higher. By contrast, a stronger transmission of monetary policy or a worsening of the global economic environment would ease price pressures.’
‘The incoming information has broadly confirmed our previous assessment of the medium-term inflation outlook. Inflation is still expected to stay too high for too long, and domestic price pressures remain strong. At the same time, inflation dropped markedly in September and most measures of underlying inflation have continued to ease. Past interest rate increases continue to be transmitted forcefully into financing conditions, which is helping to push down inflation. We consider that the key ECB interest rates are at levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our 2% medium-term target. Our future decisions will ensure that policy rates will be set at sufficiently restrictive levels for as long as necessary. By the December meeting, we will have GDP growth data for the third quarter of the year, the inflation figures for October and November, and a new round of projections. We will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. As the energy crisis fades, governments should continue to roll back the related support measures. This is essential to avoid driving up medium-term inflationary pressures, which would otherwise call for even tighter monetary policy.’
Joachim Nagel (Bundesbank)
27 October 2023
‘Inflation is still way off our target rate of 2%. But our tight monetary policy is yielding results. We on the ECB Governing Council are therefore staying our course and have left interest rates unchanged. We will continue to take decisions on the use of our monetary policy instruments on a meeting-by-meeting basis.’
François Villeroy de Galhau (Banque de France)
NO UPDATE
Ignazio Visco (Banca d’Italia)
NO UPDATE
Pablo Hernández de Cos (Banco de España)
27 October 2023
‘After the last interest rate increase that took place ... last September, the most important thing from the point of view of the communication of the European Central Bank has been that we think that with the information that we have at the moment - and this is very important to underline - interest rates at their current level, if they are maintained for a sufficiently long time, could be sufficient to reach our inflation target... What was relevant at yesterday's meeting was precisely ... to assess the extent to which what had happened in the last few weeks confirmed or did not confirm that assertion. The analysis we made, the assessment we made ... is that it is indeed still valid, and that is why we made the decision this time not to increase interest rates. But let me ... underline as always two things. First, for that statement to be valid, we continue think that interest rates will have to remain at current levels for a sufficiently long time. And secondly, that such a statement depends on economic circumstances. We have suffered a lot of shocks over the last few years, over the last few quarters. There are many risks. The level of uncertainty is still very high, and therefore we have to be cautious. And as we always say, any decision going forward is going to depend precisely on the data.’
‘First of all, on economic growth, what we have seen in recent weeks is very weak growth in the case of the euro area, and we cannot even rule out a recession, which in principle could be a mild recession, a recession of a technical nature. And furthermore, we still think that the risks are on the downside ... and in particular, because of the argument that I underlined: we have a new conflict, in this case in the Middle East, which will certainly have negative consequences on confidence, we will see. If it were to spread, it could also have very negative effects on financial markets and also on energy markets. On inflation, indeed, what we have seen is a significant reduction in both headline and core inflation. This is good news. Moreover, the forecast errors we have made in recent months have been very small or virtually non-existent, which gives us confidence about the forecasts we have going forward that inflation will indeed progressively decrease towards our 2% target. And then, very importantly ... the transmission of our monetary policy is very strong.’
‘...we do not know at this moment how long it will be necessary to maintain interest rates to achieve this 2% objective. ...The current level of uncertainty is so high that we cannot make those types of [forward guidance] statements. What we do know is that of course it is absolutely premature right now to talk about interest rate cuts, and that we think that interest rates are going to have to remain at this current level for a long enough time to achieve this objective of 2%.’
Klaas Knot (De Nederlandsche Bank)
NO UPDATE
Pierre Wunsch (Belgian National Bank)
NO UPDATE
Mārtiņš Kazāks (Latvijas Banka)
NO UPDATE
Tuomas Välimäki (Bank of Finland)
NO UPDATE
Madis Müller (Eesti Pank)
27 October 2023
‘We found that, according to current knowledge, interest rates are already high enough to allow the price increase in the euro area to slow down permanently to the 2% target set by the central bank within a reasonable period of time. The question now is primarily how long it is necessary to keep interest rates so high. The answer will be given by the economic development of the coming months and quarters. We are pleased to note that the price increase is clearly on a downward trend in the euro area. … However, the rate of price increase is still too fast. One of the important reasons for this is the relatively fast wage growth in the euro area, close to 5%. It is quite understandable that people expect a wage increase to restore as much as possible the purchasing power damaged by rapid inflation. For this, favourable conditions are created by the labour market, which is still in good condition, where the level of unemployment has remained at a record low for the euro area. … Although the euro area is currently showing the first signs of a slowdown in wage growth, sustained wage growth over a longer period of time may mean that general price growth will take longer to slow down. When talking about price increases, we can't ignore the once again high energy prices due to geopolitical tensions. The conflict in the Middle East and its possible expansion is one of the most important risks that, through rising oil and gas prices, can prevent a slowdown in price growth in the euro area. The latest news concerning the situation of the European economy and the near-term outlook is rather more pessimistic. Industrial production will probably continue to decline in October, credit growth has slowed down, and investments in both housing and companies to expand their business activities are quite modest. While industrial companies in particular have been in a relatively more difficult situation over the past year, in recent months companies in the service sector have also become more pessimistic, especially on the business services side. So far, companies offering tourism and travel services have fared better. ... In general, however, the decrease in loan volumes and investments as well as the relative weakening of general economic activity is to be expected, considering the sharp rise in interest rates over the past year. If we evaluate the outlook for the economic recovery of the euro area, on the positive side, the US economy is in a relatively better condition, supporting the export opportunities of European companies. Also, China's economic growth indicator for the last quarter turned out to be better than expected, although problems in the real estate sector there seem to continue. In summary, when describing the economic situation in the euro area, it is more correct to speak of stagnation and sluggish recovery, and not of a deep economic crisis. Getting inflation under control does not necessarily require the central bank to trigger a deep recession with high interest rates. It is still likely that the euro area economy will gradually recover next year. This is supported by the recovery of people's purchasing power, as price increases are expected to be lower than average wage increases.’
Boštjan Vasle (Banka Slovenije)
27 October 2023
‘Economic activity in the euro zone is slowing down, while inflation is gradually decreasing, but it remains above the European Central Bank's target. The latter reinforces market participants' expectations of a longer period of high levels of key central bank interest rates. In these circumstances, the members of the ECB Council have decided to keep the ECB's key interest rates unchanged this time after ten consecutive sessions in which we decided to raise interest rates, totaling 4.5 percentage points. At the same time, we emphasise that our further steps will continue to depend on the current situation. The latest data indicate that the cooling of economic activity in the euro area continued in the third quarter as well. With a decline in new orders, a reduction in inventories and stricter financing conditions, the situation remains the most challenging in manufacturing activities, while survey data have also been pointing to a slowdown in services for several months. The labour market remains resilient to the slowdown in economic activity, with the unemployment rate hitting a new low of 6.4% in August. Inflation in the euro area decreased to 4.3% in September, reflecting lower growth in food and energy prices and the moderation of core inflation. Despite this, the risks for a possible higher price increase remain significant and arise mainly from the high tightness of the labour market and the possible effects of geopolitical instability on the movement of energy prices. Previous increases in key interest rates continue to be intensively transmitted to financing conditions. The outbreak of war in the Middle East has so far had a limited impact on financial markets. The risks of worsening geopolitical conditions were most reflected in higher prices of energy products. Movements in the remaining segments of the financial markets were mainly shaped by market participants' expectations that in order to achieve the inflation target, it will be necessary to maintain key interest rates at high levels for a longer period of time. As a result, the required yields on government bonds at the global level have risen more visibly, especially for longer maturities. The associated higher borrowing costs had an impact on the increase in risk premiums, which was reflected in the drop in share prices and higher credit premiums in riskier financial segments. On the basis of this data, the members of the ECB Council have decided to keep the ECB's key interest rates unchanged this time after ten consecutive sessions in which we decided to raise interest rates, totaling 4.5 percentage points. We estimate that the latter have reached levels which, if maintained long enough, will significantly contribute to the timely return of inflation to the target level. Our further steps will continue to depend on the current situation, that is, on economic and financial data, the movement of core inflation and the effectiveness of our measures. Accordingly, our decisions on a meeting-by-meeting basis will ensure that interest rate levels are sufficiently restrictive for as long as necessary to return inflation to our 2% target in a timely manner.’
Yannis Stournaras (Bank of Greece)
NO UPDATE
Peter Kažimír (National Bank of Slovakia)
30 October 2023
‘A large chunk of our past decisions still needs to transpire into the real economy. All those voices coining this as the end of the cycle should hold their horses. It’s too soon to declare victory and say the job’s done. As much as I would like this to be the end of the path, upside inflation risks have yet to dissipate entirely. We must stay vigilant. Long story short, additional tightening could come, if incoming data force us to take such a step. Therefore, I will eagerly await the December update of our inflation forecast to get a clearer picture, confirmation, that the decline in inflation is sustained. I hope that renewed upside inflation risks from the escalating tragic conflict in the Middle East will not materialise. The Eurozone’s economy, already exposed to a combination of growth-slowing factors, struggles to regain momentum. December forecasts are one of two key milestones needed to pass. March is the latter. By then, it should have become clearer how wage negotiations for the whole year turned out and whether the risks of a spiral of high prices and high wages were off the table. Only then will we be able to say the tightening cycle is completed and move on to the subsequent – monitoring – phase. As I have said several times, we will have to stay at the peak for the next few quarters. Bets on rate cuts happening already in the first half of next year are entirely misplaced. The December meeting is going to be a very interesting one.’
Mário Centeno (Banco de Portugal)
NO UPDATE
Gabriel Makhlouf (Central Bank of Ireland)
NO UPDATE
Gediminas Šimkus (Bank of Lithuania)
30 October 2023
‘In my view, if there’s no new staggering data, current restrictive levels are sufficient.’
‘There is and there was no need to raise rates at this point. Will we need this in the future? We still have to wait and see. I’m hopeful this won’t be needed.’
‘Data-based decisions is a fundamental principle for each meeting.’
‘Uncertainty and inflationary pressures remain high.’
‘Inflation is still high, too high. Any talk about cuts is premature. We need strategic patience to keep rates at restrictive levels. I’d be highly surprised to see a rate cut in the first half. I don’t think so.’
Robert Holzmann (Austrian National Bank)
NO UPDATE
Boris Vujčić (Croatian National Bank)
29 October 2023
‘We have finished with the process of raising interest rates for now. At this moment we see that inflation is falling, we have a disinflation process. And after we conducted a series of measures to dampen lending, it has fallen.’
Gaston Reinesch (Central Bank of Luxembourg)
NO UPDATE
Constantinos Herodotou (Central Bank of Cyprus)
NO UPDATE