By David Barwick – FRANKFURT (Econostream) – European Central Bank Vice President Luis de Guindos said in an interview published Sunday that a global supply shock would first affect inflation and then growth, and warned against assuming that a possible June rate hike would necessarily be followed by another move.
In an interview with Spanish newspaper Expansión, de Guindos, whose term as the ECB’s number two official ends today, declined to say how he would vote if he were taking part in the ECB’s June 11 monetary policy meeting.
“I am not going to take a position, but in my view, we are facing a global supply shock that will be reflected first in inflation and then in growth,” he said.
The shock went beyond energy and also affected other goods, worsening the deterioration in the terms of trade, he said.
“This will have a particularly pronounced impact on economic growth through both consumption and investment,” he said. “And that will ultimately temper the initial impact of rising energy prices on inflation.”
The impact on growth would be “clear” and could even exceed that of Russia’s invasion of Ukraine, which was more regionally contained, he said.
The Governing Council would take all this into account, de Guindos said, describing the current situation as a dilemma for central banks.
“[I]n June the Governing Council will have new macroeconomic projections and more information on the conflict, which is the great unknown,” he said.
Asked whether a rate hike could be assumed to be followed by another increase, de Guindos said he “would not be so categorical.”
“The ECB follows a meeting-by-meeting approach and takes decisions based on the data,” he said. “There is no predetermined decision for June.”
Even if such a decision existed, he said, assuming an additional hike would be “even more uncertain.”
“Everything will depend on the data and the projections,” he said.
De Guindos rejected comparisons with the ECB’s 2011 rate increases, saying that episode was long past and conditions were not comparable.
The current situation also differed from 2021, he said, citing the pandemic, post-reopening bottlenecks, Russia’s invasion of Ukraine and extremely expansionary monetary and fiscal policies at the time.
“With the benefit of hindsight, it can be said that we were somewhat late to act in 2021, as were other central banks,” he said. “But the situation today is completely different.”
The Eurozone was now facing a supply shock, but economic policies were not as expansionary as a few years ago, he said.
On Spain’s representation at the ECB, de Guindos said the country’s presence on the Executive Board was “both essential and fully justified.”
Spain was likely to have strong candidates and could recover an Executive Board seat “in the coming quarters” as current mandates expired, he said.
“If the opportunity to go for the presidency arises, all the better – but I wouldn’t speculate,” he said. “The important thing is to be represented on the Executive Board.”