ECB’s de Guindos: ‘We Have to Be Extremely Prudent and Extremely Cautious’

2 July 2024

By Isabel Teles – SINTRA, Portugal (Econostream) – European Central Bank Vice President Luis de Guindos on Tuesday warned that the next months would be difficult for the disinflationary process.

In an interview with CNBC on the margins of the ECB Forum on Central Banking, de Guindos said, ‘We’ll have ups and downs in the evolution of inflation until the year ends. Even though we believe the direction of monetary policy is clear, in the short-term, we have to be extremely prudent and extremely cautious.’

The ECB was confident about inflation converging to the 2% target but believed that ‘the next months are not going to be easy’, he said.

Geopolitics and the electoral process were the main sources of uncertainty, he said, also citing developments in the labour market and the risk of fragmentation.

The market’s reaction to the political uncertainty in France had been ‘quite orderly’ and was more related to fiscal policy than to monetary policy, he said.

‘The reason why markets could be upset – for any government, not only for France – is that fiscal policy is not adjusted to the new fiscal framework’, he said. ‘So I think the key factor here is going to be the full respect of the fiscal framework that was agreed in the beginning of this year.’

Growth in the euro area had surprised positively in the first quarter of 2024 and the second quarter would be similar, he said, which indicated a ‘very light recovery’ that would become stronger in the following quarters.

‘But growth is going to be below potential, that’s real’, he said. ‘But we believe that in the second half of the year, because of the recovery of real wages and because of the recovery of net exports, growth will be stronger than at the first half of the year.’