De Guindos: ECB to Keep as Much Optionality as Possible Considering Uncertainty

16 September 2024

By Marta Vilar – MADRID (Econostream) – European Central Bank Vice President Luis de Guindos said on Monday that the ECB will retain full optionality in its monetary policy, given high uncertainty.

Speaking at a banking forum organised by El Economista in Madrid, de Guindos said, ‘We want to keep as much optionality as possible considering the uncertainty. We’ll see what happens in upcoming monetary policy meetings.’

Asked by Econostream about Lagarde’s communication on Thursday regarding future rate cuts, he stated that her wording was very similar to that of previous press conferences and that the ECB was sticking to a meeting-by-meeting approach.

‘We don’t have a predetermined and preconceived interest rate path’, he said.

De Guindos stated that the ECB was expecting inflation to decrease in September, but rebound in Q4. ‘What we have to see, fundamentally, is our projections’, he said.

Although he reminded that inflation was expected to reach the 2% target by the end of 2025, according to the ECB’s latest projections, de Guindos said he believed that ‘no one in the Governing Council knows what will happen in the months ahead’.

Wage developments and low productivity were now driving services inflation, the main concern for the ECB in terms of overall inflation, he said.

‘Our projections show we will see a relatively noticeable reduction in wage growth in the beginning of next year, which, in conjunction with a slight recovery of productivity, will take the evolution of labour costs to an appropriate level’, he said.

De Guindos recalled that the ECB would stop reinvesting redemptions from the PEPP at the end of 2024, which would result in a reduction of the ECB’s balance sheet that will ‘absorb liquidity by €40 billion monthly’.