ECB’s de Guindos: Elevated Uncertainty Calls for Prudence With Interest Rates

15 January 2025

ECB’s de Guindos: Elevated Uncertainty Calls for Prudence With Interest Rates
Luis De Guindos, vice president of the European Central Bank, at the ECB main building in Frankfurt am Main on May 15, 2024. Photo by © Maria Rita Quitadamo/ECB under CC BY-NC-ND 2.0.

By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos on Wednesday said that high uncertainty in various regards demanded a cautious approach to monetary policy and excluded pre-commitments.

In a speech at the 15th edition of Spain Investors Day in Madrid, de Guindos, according to a text provided by the ECB, nonetheless said that if the central scenario materialised, there would clearly be further rate cuts.

‘Given the high level of uncertainty, we will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance’, he said. ‘The high level of uncertainty calls for prudence.’

Trade conflicts could fragment the global economy, fiscal policies could depress borrowing costs and geopolitical events could put upward pressure on energy prices, he said.

‘We are therefore not pre-committing to a particular rate path’, he said. ‘If the incoming data confirm our baseline, the policy trajectory is clear, and we expect to continue to further reduce the restrictiveness of monetary policy.’

De Guindos reiterated that concerns surrounding the growth outlook now outweighed inflation worries. Underlying inflation measures mostly showed inflation durably returning to the ECB’s price stability objective, he said.

‘One of these measures, our Persistent and Common Component of Inflation, for example, which has the best predictive power for headline inflation over the one- to two-year ahead horizon, has been around 2% for more than a year’, he noted.

Domestic inflation was still high, but this was primarily due to the lag with which wages and prices in some sectors responded to previous inflation, he said.

Growth prospects were ‘weak and subject to significant uncertainty’, he said. ‘The latest information suggests that the economy is losing momentum.’ Risks to growth were still on the downside, he said.

Still, the conditions for some recovery over the projection horizon were in place, he said, citing higher real household income, easier credit and, if there were no trade conflict, stronger exports.