ECB’s Centeno: Monetary Policy Must React Only if Necessary

4 December 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Mário Centeno on Monday said that monetary policy was working and should not react to developments unless necessary.

In an analysis posted to the website of the Banco de Portugal, which he heads, Centeno said, ‘Monetary policy has been at work, albeit with its usual lag. We must exercise patience, as only policymakers can, following the principles of reading data, reporting findings, and reacting only if necessary.’

If not for robust employment, the euro area would be facing stagflation, he said.

‘We have avoided stagflation because firms correctly interpreted inflation as a transitory phenomenon, which matched with demand, required no employment adjustment, yet’, he said.

The demand for labour must be perceived as a response to economic activity, he said, adding that ‘[p]reserving workers' investments and aspirations is incompatible with tightening more than necessary.’

‘Caution should guide wage increases, which should be driven by productivity gains, as observed in the past 35 years’, he urged.

A central fiscal capacity would contribute to strengthening the labour market, he said.

‘The implementation of an EU-wide unemployment insurance mechanism would also make a decisive contribution to further enhance labour market efficiency’, he said.