By Marta Vilar – ROME (Econostream) – European Central Bank Governing Council member Pierre Wunsch said on Monday that if recent declines in oil and gas prices persist and second-round effects remain contained, the ECB should be able to return inflation to target without needing significant additional monetary tightening.
Speaking virtually at a conference in the Banca d’Italia, Wunsch, who heads the National Bank of Belgium, said that refusing to deliver a more benign monetary policy expectation would look “stubborn” given recent developments in the Middle East.
"My hope – and let's see, because of course there is a lot of uncertainty – is that the shock has disappeared," he said. "According to the markets, oil and gas prices would go back to initial levels, even maybe below initial levels, relatively soon."
If that happened before inflation became embedded through wages and broader price-setting behaviour, the ECB would probably not need to tighten policy much further, he said.
"That would point to a monetary policy reaction – maybe we need to do more – but that doesn't ask for a tightening that would be significant," he said.
Wunsch noted that wage developments had so far remained "quite benign", suggesting that second-round effects had yet to materialise.
At the same time, he said he was “not excluding another move.”
Should another increase prove necessary, however, Wunsch reiterated his preference for acting sooner rather than later.
"If we have to do that move, let's not wait too long," he said. "We will have a projection in September, but I'm a little afraid that we would hike too late when the movement starts in the other direction."
He warned that considerable uncertainty remained and that the outlook ultimately depended on whether the recent improvement in energy markets proved durable.
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