By Marta Vilar – MADRID (Econostream) – The European Central Bank would need to be “very vigilant” if low-priced Chinese exports to Europe increased further, ECB Vice President Luis de Guindos said.
In an interview with Econostream on Friday (transcript here), de Guindos said the ECB was in a better position on growth—now “more resilient” than expected—and on inflation, which he said was “converging to target.”
Asked which risks could prompt a policy shift, de Guindos cited geopolitical tensions in Ukraine, the Middle East and Iran, as well as rising competition from China abroad and at home.
In the euro area’s foreign markets, China has become more competitive and now exports goods similar in quality and mix to Europe’s, he said, while domestically the penetration of Chinese products is becoming increasingly evident.
He said the ECB would need to be “very vigilant” in the event of further diversion of Chinese goods to Europe, adding that these low-priced exports could put downward pressure on inflation and growth.
“Given the circumstances and these potential risks, we believe that the current level of interest rates is appropriate,” he said. “And we need to maintain an open-minded approach to the future direction of monetary policy.”
Risks to the outlook were balanced, he said, but those related to geopolitics and Chinese exports could become “more tangible and relevant sooner.”
De Guindos said the phrase “good place” could be misleading, adding that he preferred to describe the economy as more resilient and inflation as converging toward its target.
Asked whether markets were misreading the “good place” as too static, he said he was instead referring to possible misunderstandings among consumers, noting that price levels remain very high.
“Markets understand our monetary policy stance and what we are doing. Our communication is clear,” he added. “However, it is necessary to explain what is meant by being in a ‘good place.’”
Addressing market interpretations of President Christine Lagarde’s December reference to “all options” as signaling possible rate hikes, de Guindos said ECB policymakers did not “always express ourselves in the same way,” stressing that he “certainly” did not.
He added that markets tend to over-scrutinize minor changes and reiterated that the ECB’s policy stance had “not changed” since the December meeting.
January’s flash CPI data was in line with ECB expectations, he said, noting that energy inflation was lower than expected while services inflation was “moving in the right direction,” and calling the slight downside surprise in services “not particularly important.”
Indicators such as compensation per employee and collective bargaining agreements pointed to further moderation in wage growth, he said.
While the ECB does not target the exchange rate, it remained a “very important variable” that is monitored closely, de Guindos said.
The euro had been hovering around $1.16-1.18 for a long time and after a brief surge was now back at that range, he noted, adding that this level was “fully consistent with the assumptions included in our projections.”
The exchange rate deserved “attention”, but recent movements had not been “dramatic at all”, according to de Guindos.
Commenting on the selection of Kevin Warsh as the next chair of the Federal Reserve, de Guindos said Warsh was a “knowledgeable person” who understood how markets function, calling the choice a “good” one.
Asked about the nomination of Boris Vujčić as his successor, de Guindos said all candidates were strong but highlighted Vujčić’s experience.
“He is widely respected, has a clear understanding of the challenges ahead and has made important contributions to our discussions,” he said.
As regards gender balance in future Executive Board appointments, he said it was unfortunate that no female candidates had been put forward in the nomination of the new vice president and expressed hope that this would change with respect to pending vacancies.
