They Said It - Recent Comments of ECB Governing Council Members
3 November 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)
02 November 2023
‘Our estimates suggest that, should energy prices over the coming months increase in line with their historical mean, energy is estimated to add nearly 1.9 percentage points to euro area headline inflation by July 2024. This primarily reflects the strong decline in oil and gas prices observed since November 2022. A rise in energy prices over and above the historical mean would further amplify such base effects. The extraordinarily sharp rise in food prices in 2022 and early 2023 implies that similar dynamics for headline inflation may occur, at some point, for the food component of the HICP.’
‘Our indicators, especially those tracking recently signed wage agreements, point to continued strong wage growth at a time when inflation is already falling. These are the slow-moving second-round effects of the adverse supply-side shocks that hit the euro area economy in previous years. Meagre productivity growth is putting additional pressure on firm’s unit labour costs, which have been rising sharply since the beginning of 2022. The distribution of price changes illustrates these rigidities. In September, around 45% of services prices, weighted according to their share in the HICP basket, were still increasing at a rate above 5%, with this share declining only very slowly. In the goods sector, the share of products seeing particularly strong price increases started to decline earlier. But even in this sector, still nearly 40% of products are currently rising at a rate above 5%. Given these rigidities, disinflation will slow down appreciably. For core inflation to evolve in line with ECB staff projections, two key conditions need to be met. One is that the growth in unit labour costs eventually falls back to levels that are broadly consistent with 2% medium-term inflation. The second is that firms will use their profit margins as a buffer to limit the pass-through of the current strong wage increases to consumer prices. The last mile is about ensuring that these two conditions materialise in a timely manner. That process faces two key challenges. The first is the appropriate calibration and transmission of monetary policy. The second is the potential occurrence of new supply-side shocks.’
‘It is unclear how long the transmission through the labour market will remain muted. It is reasonable to assume that the longer economic activity stagnates, the harder it will be for firms, most notably small and medium-sized firms, to hoard labour. And indeed, we are seeing first signs that the labour market is softening and demand for labour slowing. But the more slowly this process unfolds and the weaker it is, the higher the risks that persistent labour market tightness will challenge the assumptions underlying the projected decline in core inflation. In particular, unit labour costs may grow more strongly than projected as labour hoarding continues to weigh on productivity growth and labour shortages support favourable wage bargaining conditions at a time when workers are still trying to make up for the substantial losses in their purchasing power. Higher unit labour costs, in turn, raise the risk that firms pass a larger part of their cost increases on to final consumer prices, which could lay the ground for a wage-price spiral.’
‘Although our determined monetary policy decisions have secured the broad anchoring of long-term inflation expectations, surveys and financial market prices continue to point to concerns that inflation may stay elevated. For example, the distribution of longer-term inflation expectations in our survey of professional forecasters, while remaining broadly anchored around our target, has shifted visibly to the right compared with the periods before and during the pandemic, with risks to the inflation outlook being tilted to the upside. Similarly, risk premia in the swap market for inflation far into the future remain elevated.’
‘Perseverance is needed to avoid declaring victory too early. With our current monetary policy stance, we expect inflation to return to our target by 2025. The progress on inflation that we have seen so far is encouraging and in line with our projections. We therefore decided to leave our key policy rates unchanged at last week’s monetary policy meeting. However, the disinflation process during the last mile will be more uncertain, slower and bumpier. Continued vigilance is therefore needed. After a long period of high inflation, inflation expectations are fragile and renewed supply-side shocks can destabilise them, threatening medium-term price stability. This also means that we cannot close the door to further rate hikes. If we stay vigilant, we will be able to spot early on any risks to the inflation outlook that are materialising, just as the runner listens to the signals from her body. This means that we need to carefully monitor all incoming data and continuously verify whether they are consistent with the assumptions underlying our projections. Data dependence ensures that our monetary policy is at all times calibrated in accordance with the circumstances we are facing. The inflation target is now within reach, but let’s celebrate only once we have truly tackled the last mile.’
Luis de Guindos (ECB)
31 October 2023
‘[I]nflation is expected to continue to slow down in the next months.’
‘In the last Governing Council meeting, we decided to stop rising interest rates. The message here is that if we keep rates at this level, inflation will eventually converge to our price stability definition of 2%.’
‘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.’
Piero Cipollone (ECB)
NO UPDATE
Joachim Nagel (Bundesbank)
1 November 2023
‘But one thing is clear: uncertainty in this form [Middle East violence] is usually not good for economic processes and is therefore also relatively bad for growth prospects. But as I said, it is still too early to ultimately make a final economic judgment. … Of course, as monetary policymakers and central banks, we look at things like this and think about how we could react if necessary. But I can tell you one thing: If it were necessary, we are positioned to respond to it.’
‘The important message first is that inflation is falling. This means that monetary policy is working, and that is a good message. If you can still remember: last year we still had double-digit inflation rates. The inflation rate has now fallen to just under 4%. The important core inflation rate - i.e. adjusted for energy and food prices - is still above 4%. We are still a long way from our 2% target, but the direction is right. Monetary policy will continue to be firm about really getting inflation to 2%.’
‘We have decided to make new decisions from meeting to meeting, based on new data. And that is certainly the right approach in the current situation, which is characterized by a lot of uncertainty.’
‘Last week we left interest rates unchanged for the first time since July 2022. Given the current inflation outlook and the tightening of monetary policy that has already been achieved, I believe this is correct. Our tight monetary policy is working, but we must not let up too soon. Rather, the key interest rates will have to remain at a sufficiently high level for a sufficiently long time. It is not yet possible to say whether interest rates have already reached their peak: we remain strictly dependent on data. There are several upside risks to inflation. Geopolitical tensions in the Middle East could drive up energy prices and make the medium-term outlook more uncertain. Our monetary policy stance must ensure that inflation returns to 2%. Inflation has proven stubborn and has not yet been defeated. The people of the euro area rightly expect us to do our job and ensure price stability. That is my top priority.’
‘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)
31 October 2023
‘The provisional figures for October show a marked deceleration in inflation in France, as in the Eurozone: at 2.9%, it has been considerably reduced over the last year (10.6% in October 2022). Energy prices are certainly contributing to this, but core inflation (excluding energy and food) is also continuing to fall: at 4.2% in the Eurozone and even lower in France, it has clearly passed its spring peak. This is a strong sign of the effectiveness of monetary policy. At the same time, the French economy, although slowing, showed a degree of resilience in the third quarter, with clear growth in consumption and investment. This state of the economy fully justifies the halt to the rate hike sequence decided by the Governing Council last Thursday. Our monetary policy must now be guided by confidence and patience: confidence that we are making firm progress towards bringing inflation down to 2% by 2025; and patience that interest rates will remain at their current level for as long as is necessary for them to be fully effective.’
Fabio Panetta (Banca d’Italia)
NO UPDATE
Pablo Hernández de Cos (Banco de España)
02 November 2023
‘Overall, therefore, since our September meeting, we have observed:
- A materialisation of downside risks to economic growth in the euro area. Risks for the future remain, moreover, on the downside.
- Similar developments as expected with regard to inflation, with headline and core inflation declining further. Risks to inflation going forward remain balanced.
- A further, stronger than expected, tightening of financial conditions confirms a very strong transmission of our monetary policy. Moreover, a significant part of the pass-through of monetary policy tightening is still outstanding.
On the basis of this assessment, last week the GC of the ECB maintained interest rates and considered that they are at levels that, maintained for a sufficiently long period of time, will contribute substantially to bringing inflation back to its 2% objective.
- The high level of uncertainty requires maintaining the data-dependent approach.
- In any case, policy rates will be set at sufficiently restrictive levels for as long as necessary to achieve our objective.
- For the time being, it is absolutely premature to talk about interest rate cuts.
Geopolitical risks, in particular the possible extension of the war in the Middle East, remain the main driver of economic and inflationary developments in the euro area.
- Should this risk materialise, it could have a large negative impact on confidence and financial markets and, in particular, lead to a significant increase in energy commodity prices, which would constitute a further negative supply shock.
The monetary policy reaction to a possible materialisation of this new supply shock could be different from the one that emerged as a result of the war in Ukraine, given that, while in the short term it would generate an increase in inflation, from the perspective of medium-term inflation, which is the relevant one for the ECB, its effects could be much smaller, given that:
- Monetary policy now maintains a clearly restrictive stance. As an illustration, the interest rate on the deposit facility stands at 4% compared to -0.5% before the outbreak of the war in Ukraine.
- Euro area activity is now very weak, compared to the strong rebound after COVID that accompanied the start of the Ukrainian war.
For monetary policy to have this different reaction to the eventual materialisation of such a new negative supply shock, it would be crucial for medium-term inflation expectations to remain anchored at 2% and for second-round effects on wages and inflation to be limited.’
‘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)
02 November 2023
‘Restrictive policies will likely remain needed for some time to come to get inflation back down to target. Personally, and conditional on incoming data confirming the latest projections from September, I see the current level of our policy rates as a good ‘cruising altitude’ where they can remain for some time.’
‘the effects of the policy tightening on the real economy - think about investment, GDP, unemployment – will only be felt in about one year’s time. Hence, we should be a little patient and not raise rates too much to prevent choking off the economy. Second, even though inflation numbers have started to decrease, the risk still remains that high inflation may become entrenched if second round effects persist or inflation expectations de-anchor. Therefore, we need the incoming data to continue to confirm our projections – which have not been the best in an environment of major shocks – if we are to have confidence in them.’
‘To date, this ‘quantitative tightening’ has been smooth and well-absorbed by financial markets. This is similar to what we see from our international peers, who – in fact – are reducing their balance sheet at a relatively faster pace. That brings me to the challenge. While, clearly, the current balance sheet has to shrink, our future balance sheet size may need to be larger than it was before the Global Financial crisis. The reason is that structural changes in financial markets, including a higher demand for liquidity, will call for a larger central bank reserves in the future. In my view, refinancing operations represent the most efficient tool to provide such a level of reserves down the road.’
Pierre Wunsch (Belgian National Bank)
NO UPDATE
Mārtiņš Kazāks (Latvijas Banka)
31 October 2023
Cutting rates would take a ‘very dramatic turnaround’ of the economy.
‘There’s no need to discuss rate cuts.’
A rate cut in 1H 2024 ‘would be, in my view, inconsistent with the current macro outlook — but uncertainty, of course, remains high.’
‘Yes, we’ve seen a sharp decrease in inflation rates, but they’re still way above 2%. The risks of inflation becoming persistent at higher levels than we’ve seen in the past, but not at 2%, are of course still there.’
‘The door should be always open if we see it necessary for rates to go up. We’ll decide it from meeting to meeting.’
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)
31 October 2023
‘So far, the path of disinflation meets our expectations. But the economy is much weaker than we thought in September. This is the main difference compared to the last meeting. Financial conditions are also slightly tighter than expected.’
The role played in the discussion at the last Council meeting by the violence in the Middle East was ‘[a]n important one. The level of uncertainty in the supply side is very high. It added up to the decision of becoming more cautious. … We have seen a reaction in financial markets and the energy market, but not a dramatic one. The problem is that we don’t know what’s going to happen, how many countries will be involved. I have seen and experienced the consequences of many crises in my life to know: At this moment, the markets are just waiting. They pause. For us, the Governing Council of the ECB, this is a source of high uncertainty. … Of course. We know that a major Middle East crisis with involvement of oil producing countries will have a large impact on energy markets, which might be inflationary in the short term. But there is the risk of stagnation in the medium term, not to mention refugee influxes to Europe. That is a really dangerous situation.’
‘I can tell you my personal view: Yes, we have [reached the terminal rate]. I don’t know whether it’s a majority view in the Governing Council of the ECB, because we have not discussed this issue yet. This may be discussed in subsequent meetings in 2024. … With the additional uncertainty in the Middle East, it is even more difficult to say [when rates can go down]. Personally, again, I would start thinking about reducing interest rates, if inflation in the middle of 2024 passed the threshold of the 3% to the south in a permanent, sustainable way.’
‘If I am not mistaken, the pace of reduction of the Eurosystem balance sheet is the strongest among the major central banks in the world. And it continues in this direction, through TLTRO and APP redemptions. Why should we increase it even more given that economic uncertainty worldwide has increased?’
‘While significant progress is being made, the battle to fight inflation has not yet been won. At the same time, for as long as monetary policy tightening to stabilise prices lasts, the fiscal stance should be restrictive so as not to create excess demand that could feed back into current inflationary pressures.’
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)
03 November 2023
‘Recent October inflation figures for Portugal and for the euro area prove the convergence towards the medium-term objective of 2%, which is good news for the conduct of monetary policy.’
‘The slowdown in external production and more restrictive financing conditions are affecting and conditioning consumption and investment decisions and obviously have an impact on growth.’
Gabriel Makhlouf (Central Bank of Ireland)
31 October 2023
‘[Last week], we decided to keep the three key ECB interest rates unchanged. The incoming information broadly confirmed our previous assessment of the medium-term inflation outlook with inflation still expected to stay too high for too long, and domestic price pressures remaining strong. Our past rate increases continue to be transmitted forcefully into financing conditions and are increasingly dampening demand, thereby helping to push down inflation. Our assessment remains 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.’
‘To repeat, the central bank’s balance sheet is a policy tool. Our task is not to make profits but to ensure price stability. We have always known that, at some point, monetary policy actions to achieve price stability could result in losses on our balance sheet. We identified these risks a number of years ago and have been taking prudent actions to prepare for such an eventuality.’
‘I expect us to report losses in the years ahead as a result of the monetary policy measures taken in the pursuit of price stability over the past decade, coupled with the current level of interest rates to return inflation to our target. But that is one of the consequences of having our balance sheet as a policy tool and our overriding commitment to deliver price stability.’
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