ECB Insight: De Guindos Makes Clear That the ECB Remains Firmly in a Waiting Game

14 February 2024

By David Barwick – SPLIT, Croatia (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday understatedly but resolutely discouraged very short-term rate cut expectations even as he recognised the progress in disinflation so far and voiced the anticipation that this would continue.

His remarks at the annual conference of Mediterranean central banks are decidedly not consistent with an ECB move as early as March. The extent to which they leave April open is debatable, but we think on balance that a move that soon would also contradict the spirit of his comments.

‘While we are heading in the right direction, we must not get ahead of ourselves’, he said. ‘It will take some more time before we have the necessary information to confirm that inflation is sustainably returning to our 2% target.’

The exhortation not to ‘get ahead of ourselves’ is clear, but what does ‘some more time’ mean? His next sentences seem to have been intended as something of a guide.

‘That is why we will continue to be guided by data’, he continued. ‘The next few months will be especially rich in new information on drivers of underlying inflation as we receive data on latest wage settlements and price re-setting by firms.’

Of course, ‘few months’ can also be interpreted variously. Still, to think in mid-February that this phrase would be consistent with the Governing Council’s April meeting being a candidate for policy easing to start would be stretching things a good deal more than we would care to.

True, de Guindos noted the availability of updated macroeconomic projections in March, but not least in view of how the tone of his speech is otherwise wholly inconsistent with a March date, we assign no particular importance to the mere observation that new forecasts will be issued.

In any case, we do not wish to exaggerate the importance of the forecasts, which even now are not what holds the ECB back from lowering official borrowing costs.

In sum, we find no reasonable reading of his speech that would suggest that the ECB Vice President is in any hurry to cut interest rates.

It is worth recalling that as Executive Board member, he is responsible, among other things, for financial stability, in which context he has consistently advocated prudence. We think this cautious attitude of his informs today’s intervention.

As such, perhaps the second sentence of his speech text offers more insight into his apparent preference for a go-slow approach than do his remarks directly addressing the monetary policy outlook. In that sentence, he calls credibility ‘a key central bank asset that becomes even more important in times of high uncertainty.’