ECB’s Makhlouf: Prefer Gradual Changes to Monetary Policy Stance

11 March 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank Governing Council member Gabriel Makhlouf on Saturday said that when the time came for the ECB to modify its monetary policy stance, gradual changes would be preferable.

In an interview with Irish daily the Irish Independent, Makhlouf, who heads the Central Bank of Ireland, said, ‘I think that gradual change in the stance is the best way of adjusting and communicating to markets what we’re doing, rather than a sudden decision that recalibrates us in that way.’

Large individual cuts were ‘probably unlikely’, he said, ‘simply because the data is never that definitive.’

The Governing Council now had ‘greater confidence’ about inflation’s trajectory, but not sufficiently to change the monetary policy stance, he said.

‘When we get to the point of feeling, actually, you know, we’re confident enough about meeting our target, then we’ll recalibrate the stance and reduce our policy rates’, he said. ‘But I expect the stance to remain restrictive for some time – but just not as restrictive.’

Interest rates wouldn’t rise again, he said, adding that to reverse the current stance, more data were necessary, especially regarding wages.

Geopolitical risks were still out there and shouldn’t be disregarded, he said.

The errors in the ECB’s forecasts have diminished, he said, noting that it was not the case that ‘the forecast said this, therefore, we need to do X’.

‘The forecasts are what they are. Some people believe in them much more strongly than I do’, he said. ‘I always think that there is so much judgement you have to exercise, because the tendency of forecasts is that they tend to use backward-looking information, and there’s a lot judgement involved in the forward look.’