They Said It - Recent Comments of ECB Governing Council Members
5 February 2024
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 25 January, but earlier comments can still be seen in versions up to that of 19 January.
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Christine Lagarde (ECB)
30 January 2024
‘We need all sorts of data, but one of which is critically important — it’s the data concerning wages.’
‘We are not there [at target] yet.’
‘I want to get to 2%, and I want to get to that 2% sustainably so that people in the street will do their shopping and will go to the petrol station and appreciate that we are doing the job for them.’
‘If you look at what those years were when Mr Trump was president of the United States… there could be threats and there could be issues for which the Europeans should be prepared.’
‘First of all, the consensus around the table of the Governing Council was that it was premature to discuss rate cuts. In addition to that, I typically stand by my comments. So the comments I made to your television channel, Bloomberg, I certainly stand by them. I’m not sure that I would exactly characterise them as you have, but I stand by what I have said, not what others have commented that I have said. One other thing which was very much the consensus around the table was that we had to continue to be data-dependent. So rather than being fixated on any kind of particular calendar, which would be being date-dependent, we reaffirmed our data dependency. And I have flagged in the course of the monetary policy statement some of the areas that we will be particularly attentive to in the course of the next few months.’
‘But we are observing very carefully because we are seeing what you are all observing, which is that shipping costs are increasing, delivery delays are increasing and, while we all know that there is more shipping capacity than there was in 2020 and 2021, we also know that costs and fees are increasing. Now, I think most observers agree to say that it has a moderate impact. The percentage of the water transport costs is a little north of 1.5% of total input costs. But we are being very careful and looking attentively to the developments, and it’s pretty clear. I think whether you look at the IMF, the OECD, or other commentators, if the conflict in that region was to develop further, clearly that would be an additional risk, whether it’s a question of the disruption of shipping that we alluded to or the price of energy and commodities at large.’
‘We are seeing those indicators at a high level. What we are also seeing on the wage tracker is stabilisation, which explains the comments included in the monetary policy statement. And in Indeed we are seeing also a slight reduction of the volume of vacancies that are advertised. Now, we take all these data at face value, and we try to constantly corroborate them. We do that with the national central banks, observers, and economists to make sure that we really canvas the 20 Member States as accurately as possible. It’s not elusive because really, we’re trying to pin it down, but it requires that we look at it from multiple angles to make sure that we are as accurate and as up to date as we can be. Being forward-looking is not an easy one for wages. But just to give you an idea, I think it’s 40% of the employees covered by our wage tracker which have had their employment contract renewed without new terms of salary levels in December. So the 40% include those whose terms and conditions have expired and must be renewed at the end of December and those for which the same will happen in the first three months of 2024. So you have 40% of the workforce of whom salaries, wages, one-off payments are yet to be determined and will be tracked by our wage tracker. This information will come in the course of the next few months, which will be of course really rich in information to help us better understand exactly where we are on wages.’
‘As I said, we are data-dependent, and we make decisions one meeting at a time. What we have done in the course of this meeting today is that we have confirmed our inflation outlook and we consider that the information that we have received in the last few weeks since our December meeting showed that the medium-term inflation outlook is broadly following the path that we had projected in December. That’s point number one. Point number two, we look also very carefully at data concerning underlying inflation and here we are seeing a decline across the board of pretty much all our indicators. We also look carefully at inflation expectations. Those were a few weeks which were rich in information, where we have seen that both the market-based and the survey-based inflation expectations are also, both in the short term and for some of them also for the medium term, really coming in at around our 2% target. And of course, we look at the latest inflation numbers, and you will have seen all of you that the December number was 0.5pp north of the November number, which was this 2.4. But we had expected that upside, which was caused by base effects largely attributable to German measures. It was weaker than we had anticipated but it was totally predicted, and it does not detract from the view that we have that the disinflation process is at work.’
‘All I can say is that the consensus around the table of the Governing Council this morning was that it was premature to discuss rate cuts. It’s as simple as that.’
‘On wage growth, I think whether you look at past wage numbers, whether you dissect that in compensation per employee, in negotiated wages, taking on or excluding the one-off payments, we are seeing a slight decline. So it’s directionally good from our perspective. To your question about should it stabilise or should it decline, it’s already declining. Clearly, our hope is that the wage increases – because we are still seeing an increase, whether you look at 5.2% or 3.4% depending on what measurement item you take – are sufficiently absorbed by the profit unit, as we are seeing happening at the moment. So that it does not go into fuelling inflation, which would create the risk of a second-round effect, which we are not seeing for the moment. So the hypothesis that we had when we built the baseline of December, which was that the profit unit would eventually come down as a result of dampened demand as a result of our monetary policy stance, is actually happening, and there is a phenomenon of catching up for employees. It’s also one of the reasons why we see growth coming up and the recovery beginning in the course of 2024; because of rising wages while inflation comes down, which will free up some purchasing power, which hopefully will stimulate consumption.’
‘I think in terms of an overall evaluation of our policy trajectory, which many of you are after, we need to be further along in the disinflation process before we can be sufficiently confident that inflation will actually hit the target in a timely manner and in a sustainable way at target. So, it's a disinflation process in which we are. It is working but we need to be more advanced and we need to be further along in that process to be confident that inflation will be at target sustainably so.’
Isabel Schnabel (ECB)
NO UPDATE
Philip Lane (ECB)
01 February 2024
‘Now, the December conjecture was this year would be some progress, but not a massive amount of progress.’
‘What’s important for inflation is what’s happening to unit labour costs, because if the compensation per employee remains fairly elevated, there’s a big drop projected in unit labour costs this year.’
‘So the projection for this year is that the recovery should be stronger and we can get more production out of this set of workers, so net productivity should grow this year… This is contingent on the economy growing more quickly, that is the conjecture.’
‘Unemployment is too low, which means the labour market is too hot to cool down on wages.’
‘The PMIs basically indicate there’s more to come, there’s more disinflation thus to come, but of course the last readings have picked up a bit, so it’s not disinflation forever, but more to come.’
‘How do you get to 2% inflation if wages are still going on 4[%], 5%? Part of what we’re saying is firms would absorb these labour costs. And why would they do that? Because demand is restrictive and monetary policy is one of the reasons. How can they afford to do that? It’s the level of profits.’
‘We put an equal weight on undershooting as in overshooting, so I think that would drive our decision-making.’
‘I don’t think it’s productive to speculate on this forum exactly when we’ll discuss [interest rate cuts]. We have our inflation target at 2%, we will base our interest rate decisions basically on “are we sufficiently confident?”’
‘We said last week, we confirmed our medium-term inflation outlook. That medium-term inflation outlook says unless we get surprises, we should be converging back to 2%. And when the incoming data makes us sufficiently confident, that’s when we’ll start cutting.’
‘So what we have said that for a long time, our strategy is to maintain the current interest rates until we are sure that inflation will come back to 2%. Right now, in December, the inflation was at 2.9%. So we have made progress. But we still need to make sure we will return to 2% as quickly as possible, if you like. And so we will keep this rate until we are more confident that we are on our way back to 2%. But of course, that this will be hotly debated in the coming months.’
‘So as I said, inflation at the end of last year was at 2.9%. We do think this year it will move closer to 2%. So this compared to the very large inflation that we had, is a smaller problem. It's a smaller problem. But it remains a challenge for us as the European Central Bank, to make sure inflation continues to come down towards 2%. So for the typical person on the street, I think you don't need to worry about inflation as much when it's at the current level as where they were, it was 10%. So the problem is now smaller. But it is still a problem.’
Luis de Guindos (ECB)
31 January 2024
‘Monetary policy works with a lag. We can see that banks are already charging higher interest rates and so have tightened their financing conditions. But assessing the extent to which this is already reflected in the real economy – in other words, in consumer spending and investment − is far more difficult. … My personal estimate is that the greater part of the tighter financing conditions, perhaps two thirds, has been passed through to the real economy already.’
‘In December we projected that the euro area would grow by 0.8% this year. … I personally think that the prospects have even deteriorated in the meantime. Some of the risks mentioned in our projections have materialised: world trade has lost momentum, geopolitical uncertainties have increased, and our interest rate hikes are being transmitted forcefully to the economy sooner than expected. So growth in the euro area could even be slightly below 0.8%. But let us wait for our next projections to be released in March.’
‘…inflation figures have mostly brought positive surprises recently. I think that inflation will be slightly lower than we have predicted.’
‘The good news is inflation has fallen a lot. In addition, all the underlying inflation indicators all indicate a downward trend.’
‘The evolution of inflation has been positive, we consider that the disinflation process, if no mistakes are made and no accidents, will continue in the future. Growth will be reduced, it will be the second year with growth below 1%. We believe that the markets' attention will shift from inflation to economic growth in Europe. But as I said before - and perhaps with that I’ll finish - the most important thing is attention is going to return to economic growth.’
‘There has been good news regarding the evolution of inflation, and that — sooner or later — will end up being reflected in the monetary policy.’
‘We are going to be dependent on the data, we don’t have any kind of calendar, it will depend on the evolution of inflation and I am optimistic regarding the evolution of inflation.’
‘What I would tell you is that the recession is not going to be deep and that the labour market is holding up.’
Piero Cipollone (ECB)
NO UPDATE
Frank Elderson (ECB)
03 February 2024
‘And as we’ve shown for almost the past two years and demonstrated again last week: we’re determined to bring inflation back down to our target of 2% and we’re making good progress.’
Joachim Nagel (Bundesbank)
03 February 2024
‘…we mustn’t let up too soon and lose focus. I can’t say whether we are currently playing a tie-break in the fifth set. But we’ve certainly reached a stage in the game that will decide the outcome.
‘We look at the data, not the calendar. We of the Governing Council of the European Central Bank (ECB) are confident that our monetary policy is working and will bring inflation back to its target of 2%. Inflation has been decreasing significantly, and that’s a good sign. It also looks as though a soft landing will be possible in the euro area – in other words, reducing inflation without simultaneously putting too much of a strain on economic activity.’
‘We currently appear to be administering the correct “dose” of interest rate increases. But, just as in medicine, it is also important in the field of monetary policy to keep a close eye on the “patient”. We mustn’t jeopardise what has been achieved by reducing the dose too early. That’s a challenge. As I see it, the price outlook still isn’t clear enough: that’s why interest rate cuts are premature at the current juncture.’
‘A geopolitical escalation undoubtedly represents a particular risk. For instance, Russia’s terrible war of aggression against Ukraine drove up energy prices from one day to the next. This put a considerable strain on enterprises and households, as well as creating uncertainty. Even though we have now overcome this shock, energy prices are still subject to major fluctuations. The Middle East is another source of uncertainty right now; the Red Sea shipping route is under threat. That is why we monetary policymakers would be well advised to make decisions based on actual data and the current outlook. The same applies to wages. These don’t tend to rise until relatively late, which makes them a lagging indicator. Profits have already increased earlier. Both profits and wages can have a strong impact on the inflation rate; that’s something we need to bear in mind.’
‘As expected, the inflation rate in Germany fell again in January – to an estimated 3.1% as measured by the Harmonised Index of Consumer Prices. There was an outlier to the upside in December, when inflation came in at 3.8%. But that was due to a one-off factor in energy prices that now no longer applies. Over the next few months, I expect the prices of food and other products to continue to normalise. The good news is that the inflation rate is moving broadly in the right direction in 2024: that is to say, downwards.’
‘We want to avoid a situation in which market financing conditions become too loose and are thus no longer able to sufficiently dampen inflation. Abrupt price fluctuations are also unwelcome. There is no point in watching financial markets with eagle eyes the whole time, to be sure. Now and again, though, we central bankers do need to send a signal to market participants. It doesn’t matter to me whether market participants’ bets pay off or not – our job isn’t to protect people when speculation goes wrong. But if there is a mismatch between financial conditions and the inflation outlook, it becomes more difficult to maintain price stability. And that is our job – that’s just the way it is.’
‘I am now convinced that we have tamed that greedy beast.’
‘I am convinced that we will get very, very close to the inflation target of 2% in 2025.’
‘I do not believe that we have a very restrictive monetary policy.’
François Villeroy de Galhau (Banque de France)
28 January 2024
‘We are vigilant, particularly regarding possible consequences of the situation in the Middle East. But in this case, we would adapt, particularly in the timing of key rate cuts.’
‘We will lower our rates this year. On the precise date, none is excluded, and everything will be open in our next meetings. We will judge based on sufficient progress towards inflation at 2%, and we will have to avoid two risks which have become balanced: cutting too early and then letting go of the target, but also acting too late and excessively slowing down activity.’
Fabio Panetta (Banca d’Italia)
NO UPDATE
Pablo Hernández de Cos (Banco de España)
NO UPDATE
Klaas Knot (De Nederlandsche Bank)
28 January 2023
‘We now have a credible prospect that inflation will return to 2% in 2025. The only piece that's missing is the conviction that wage growth will adapt to that lower inflation.’ Once this is assured, the ECB ‘will be able to lower interest rates a bit.’
Pierre Wunsch (Belgian National Bank)
NO UPDATE
Mārtiņš Kazāks (Latvijas Banka)
26 January 2024
‘That [rushing to cut] would be by all means worse than waiting just a bit. We’ve seen from the 70s and 80s that if one starts to be relaxed too early then there’s the risk that inflation starts to come back and then one would need to raise rates much more.’
‘There are many ways to get to 2% — you could do earlier smaller steps or you could somewhat later larger steps — that will be all data dependent.’
Tuomas Välimäki (Bank of Finland)
NO UPDATE
Madis Müller (Eesti Pank)
26 January 2024
‘At this meeting of the Governing Council of the European Central Bank, we decided to keep the interest rates of the central bank at the same level. This was probably expected by all those who closely follow the activities of the central bank, and it is reasonable to expect the same from the next several monetary policy sessions.’
‘…it is not surprising that market analysts have begun to speculate more actively about when the European Central Bank will start lowering interest rates. … However, as a central banker, I have to admit that it is still too early to talk about the next interest rate decisions in a definite form. For this, there is simply too little confidence that the upward pressure on prices has eased to a sufficient extent. The core inflation indicator, which describes more permanent price pressure and excludes the impact of energy and food prices, is only close to 3.5%, and wage growth, which directly affects the prices of services in particular, is close to 5% on average in the euro area. This is not in line with the target set by the central bank, which is a sustained slowdown in price growth to close to 2%. At the same time, it is also clear that high interest rates have already cooled down the momentum of the credit market and the economy, which has also weakened the pressure for price increases.’
‘In essence, the Eurozone economy is stagnating at the moment, and it is not yet clear how quickly the expected recovery will actually materialise. The reason for moderate optimism is given by the purchasing managers' indices that have strengthened in recent months, which describe the expectations of companies and new orders for the coming year. Also, in the last months of last year, the global trade volume started to grow again. These are all positive signs. The labour market is still in a strong state - unemployment is at a record low in the euro area and the pace of wage growth is quite fast. After all, this is also a sign of entrepreneurs' faith in a better near future, because otherwise people would certainly not be recruited. At the same time, the current situation of the euro area economy does not seem too encouraging, if you look at the business volumes of companies or the behaviour and confidence of consumers.’
Boštjan Vasle (Banka Slovenije)
26 January 2024
‘The short-term price developments present a favourable outlook for the ongoing anti-inflation process. The main risks of more persistent high inflation continue to come from the tightness of the labour market and elevated wage growth.’
‘Our assessment is that if maintained sufficiently long, the current level of interest rates will make a significant contribution to the timely return of inflation to its target level. The next steps will continue to depend on the situation as it stands at the time, in particular on the economic and financial data, developments in core inflation, and the effectiveness of our measures. Our decisions will ensure that interest rates are kept at sufficiently restrictive levels for as long as it takes for inflation to return to our 2% target in a timely manner.’
Yannis Stournaras (Bank of Greece)
05 February 2024
‘Already, for several months, there has been a significant de-escalation of inflation worldwide and, in 2024, the reduction of key central bank interest rates is expected to begin.’
‘The news is good on the inflation front, and if this trend continues then we will be able to start reducing interest rates after the end of the year’s first half.’
Peter Kažimír (National Bank of Slovakia)
29 January 2024
‘We stand at a crucial crossroads marked by slowing inflation. I stress that patience is essential before making pivotal decisions concerning the timing of the cut in our interest rates. Incoming data and the upcoming March update of our inflation projections will guide our decisions. The peak of the tightening cycle is behind us. The next move will be a cut and it is within our reach. I am confident that the exact timing, whether in April or June, is secondary to the decision’s impact. The latter seems more probable, but I will not jump to premature conclusions on the timing. As soon as it is warranted, we won’t hesitate to act. We are not behind the curve; it’s more the case that the market has got ahead of events since December. Acting hastily based on short-term surprises without having more clarity about the medium term would be risky. It could easily derail the progress we have made towards reaching our target. We exercise patience in the name of stability, that’s what we need. The global landscape remains riddled by uncertainties. We need to see if the early-year repricing delivers any surprises in the other direction. Wages agreements for the coming years are still an unpredictable factor too – a cat in the bag. The risks of a premature cut, in my view, are much greater than those of acting a bit later. One should always keep in mind, that we can act as swiftly and flexibly as necessary. I am confident in our capability and willingness to do so if needed. In a nutshell – though the signs are good, we do not yet have enough information to make a confident conclusion. For this reason, discussing the timing of an interest rate cut at this point is premature. Our decisions will be driven by data and subjected to rigorous analysis. Patience, in this context, is more than a virtue; it’s the cornerstone of sound economic policy. That’s desired and it will also be delivered.’
Mário Centeno (Banco de Portugal)
03 February 2024
‘[W]e are at a stage in which, after stabilising policy rates last September, we can now begin to consider the new phase that will bring interest rates to levels compatible with medium-term 2% inflation. It is an expectation that we all have and which has very solid bases in the data we are receiving. Inflation is falling and the markets already have expectations of a reduction in rates in the near future. … For this expectation to be solid and to maintain the trajectory of Euribor and in this moment of reduction, we need to see inflation data in the coming months remaining compatible with our forecasts. We are convinced that this will happen and therefore I think that such a new phase of the monetary policy cycle will certainly materialise and - I will use an expression that many at the ECB do not like, but which is effective - provide some relief. I must not fail to make the following warning: even when interest rates start to fall, the restrictiveness of monetary policy will remain, it will remain for some time until the moment we can align this interest rate with the value that in the medium and long term will be compatible with inflation remaining at 2%.’
‘We always follow the data, this is the rule, any deviation from this statement does not follow the rules that we have established at the ECB and therefore we are not dependent on the calendar. We do not have indicators that allow us from the point of view of policy to establish dates for a certain event to take place. We have been surprised on the downside by the result of inflation, the numbers have been lower than our forecasts, the European economy has not grown for five quarters.’
‘The problem with assuming the rate cut debate is that it creates speculative pressure about when it will happen. Of course, it is highly likely that the next move, finally, when we leave this state of pause in the interest rates, will be to reduce them. When will it happen? It is still uncertain, the data will determine it. All the information that has been published and disseminated and that we have received in multiple analyses shows that this moment will come sooner than, for example, we could have thought six or nine months ago because inflation has been falling faster than we expected. But the exact date, the data will tell.’
‘Monetary policy has been at work, but with the usual transmission lag
o Strong impact on financial conditions and aggregate demand
• Contributes to the disinflationary process
• Additional restrictive effect on consumption and investment
• Under current conjecture, need to carefully assess:
o Risk of de-anchoring expectations (on the downside)
o Risks of overshooting
• Going forward: gradual approach; remain data dependent’
‘There is no evidence of second order effects due to wages pressures
• But…no room for complacency in the labour market itself – wage demands – and policy wise – fiscal and monetary.
Unfortunately, labour market slumps do not come gradually’
‘[I]f inflation is going down and it is coming down very fast — actually faster than it went up — monetary policy ought to respond to that.’
‘We will do our job in the next few months bringing stability also in this process and making sure that when interest rates need to go down, they will go down. That will of course maintain them in restrictive territory for quite some time to make sure that inflation is not back.’
‘We cannot have an economy that does not grow, that’s my main concern about Europe.’
‘[T]he first quarter of 2024 may be the sixth [quarter without growth]. This is 1 1/2 years of stagnant economy.’
‘One of those [ways to stimulate the economy] needs to come from monetary policy, from these expectations that need to be materialized that at some point interest rates will be cut.’
‘I think we need to have confidence in the results that monetary policy is achieving. Patience is always needed in these processes, because these issues take time and we will remain dependent on data. I think the decision [of Thursday] is consistent with this.’
‘I think the most important message is that we currently have a lot of evidence that inflation is falling in a sustained manner, compatible with the medium-term objective, and that monetary policy has made a significant contribution for this development and that we will remain dependent on data. There is no question of a calendar, there is no fixed date on which we can make this or that decision. It is also necessary to understand that from yesterday's message comes an idea, in my interpretation: all options are open and that it is very clear that the direction of the decisions in the next meetings, is to evaluate the adequacy of the level of interest rates to this goal.’
‘Inflation has been systematically lower than we have predicted and this has happened in recent months, which is a very important period as it is the period of approach to the medium-term objective. And therefore, we should perhaps even be a little more sensitive to these news. And I say this because the objective is 2%. And we are sensitive to deviations, either up or down from that goal. And we are almost obliged to make decisions that are compatible with the elimination of these deviations. In other words, if there is no further shock that could justify an inflationary process, the terminal rate has been reached and we reached it in September. And it is natural that the next movement will be a movement to lower rates.
‘I'll be very clear: we don't need to wait for salary data in May to get an idea about the inflation trajectory.’
‘As for the labour market, we have been paying close attention to salary data for more than two years and absolutely nothing has happened that could tell us that there are second-round effects that are materializing - companies' total costs, at the moment, are to fall. A gradual recovery in real wages is expected, it has already happened in the United States, it has not yet happened in Europe, the latest data we have still does not show a recovery in wages on a quarterly basis. Normally salaries are a backward looking indicator , salary negotiation is done with information from the past, and therefore we have to be very careful with how we read a salary growth of 3%, a salary growth of 4%. We do expect a recovery in real wages in the medium term, but it has to be gradual and so we all have to pay attention. But there is a lot more information and [being] data dependent is not [being] wage data dependent .
‘Ideally, it [monetary policy easing] would be a continuous, sustainable process, without there being back-and-forth , and not abrupt.’
‘It [25bp steps] is a possible metric. We have also been rising in steps of 25bp, when the process began to stabilise. I think it's a good metric, but that decision is yet to be made. But always understood gradually. We should never hold our cards until the last minute, because this is more typical of games other than monetary policy.’
Gabriel Makhlouf (Central Bank of Ireland)
30 January 2024
‘Economic activity and inflation weakened in euro area in the second half of 2023. The short-term outlook points to stagnation in activity in the face of tighter financing conditions, weak business and consumer confidence and low foreign demand. Over the medium term the economy should gradually return to growth as both domestic and foreign demand recover. A broad-based disinflationary process is unfolding and is expected to continue during 2024 as the effects of past energy price shocks and other pressures fade. The pace of growth in labour costs will then be the dominant driver of core inflation. … Following our latest meeting on 25 January, my colleagues and I (on the ECB’s Governing Council) decided to keep the three key ECB interest rates unchanged. The past interest rate increases continue to be transmitted forcefully to the economy. Tighter financing conditions are dampening demand, and this is helping to push down inflation. We consider that policy rates are now at levels that, if maintained for a sufficiently long duration, will make a substantial contribution to bringing euro area inflation back to target. Looking ahead, we should remain open-minded about the rate path, which is the essence of data dependence. With disinflation well underway, we are confident in sustainably reaching our target of 2%.’
‘Monetary policy is working and we’re seeing disinflation ... inflation is tracking downward in the EU and also in Ireland.’
‘I think we’ve probably reached the top of the ladder.’
Gediminas Šimkus (Bank of Lithuania)
17 January 2024
‘The further we go into 2024, the greater the chance of a rate cut. … The increase in the odds is exponential, not linear.’
Robert Holzmann (Austrian National Bank)
NO UPDATE
Boris Vujčić (Croatian National Bank)
04 February 2024
‘We need to have patience at the moment before we get into the easing cycle, to make sure that wage costs aren’t translating into sustained wage pressure.’
High corporate profits mean companies can absorb ‘much of the wage costs through their profit margins … But you cannot be sure about that until you see it.’
A wait-and-see approach is called for ‘in order not to repeat the mistakes that central banks have sometimes done in the past.’
‘The data on the GDP figures tell us that we are about to end up where I for a long time thought we would, and that is a soft landing. So, the risk of a recession I guess is smaller and smaller. … we do expect that the economy will pick up this year, so we’re going to have a modest rate of growth coupled with further disinflation. We of course in thinking about the monetary policy rate moves look at the whole set of data, not at a single data at a single point in time, so we will still have to wait for more data … before we make a decision.’
‘I would say that this difference between April and June doesn’t really make much difference for the economy. I think it’s more important that we achieve a kind of a smooth transition to the rate-cutting, whereby as I said before, I think 25bp moves are preferable than to larger moves. Larger moves happen if you feel you are a bit behind the curve. … 25bp start would be, I think, preferable. And then, I think the more important issue than the date – the date is important for rate traders, but for the economy, I think the more important is the pace. It doesn’t have to be continuous like we saw on the way up — but there will be some, probably, pauses. And then, of course, where do we end up on the way down?’
‘It [the communication at the press conference] nicely reflected the discussion we had in the two days. But lately I have the feeling that markets take whatever you say as being dovish. They have been very trigger happy.’
‘We need patience at the moment to get enough data to be confident that inflation is really firmly sustainably on the way to our medium-term target. That will come gradually, that will come over every month.’
Favours 25bp cuts
‘There is always the possibility’ of bigger steps. 25bp steps are a ‘smoother way of running monetary policy, but of course there’s also the possibility of doing more if warranted by the data.’
Gaston Reinesch (Central Bank of Luxembourg)
NO UPDATE
Constantinos Herodotou (Central Bank of Cyprus)
05 February 2024
‘Taking into account the progress in inflation as recorded in recent months and without any further unexpected developments, interest rate cuts should be expected within 2024 and always based on the assessment of economic and financial data. The descent of interest rates should not begin without being absolutely certain because then inflation may return. But neither should there be an unnecessary delay in reducing interest rates in order not to affect economic growth. So we have to rely on incoming data to pick when in 2024 interest rates will start to come down.’
‘We are taking into account the progress made and I would say there will definitely be some interest rate cuts within 2024, unless we see some unexpected developments.’
‘It is important to say that the decrease of interest rates should not start too soon because then inflation may return, and that will be a negative development, because then we will have to act again with measures to limit it.’
‘So, based on the data, we have to see when it is justified to see a decrease in interest rates within 2024.’