FRANKFURT – The following are key comments by ECB policymakers in the run up to a crucial Dec 16 policy meeting that will decide on the bank’s policy stance once emergency bond purchases end in March.
A clear divide has opened between rate-setters emphasising a growing risk of high inflation in the euro area, which at 4.9% hit the higest level since record started in 1997, and those arguing that the spike in price growth is temporary and will subside on its own.
THE INFLATION DOVES
CHRISTINE LAGARDE, ECB PRESIDENT, NOV 19
“We must not rush into a premature tightening when faced with passing or supply-driven inflation shocks.
“When inflation pressure is expected to fade – as is the case today – it does not make sense to react by tightening policy. The tightening would not affect the economy until after the shock has already passed.”
PHILIP LANE, CHIEF ECONOMIST, NOV 8
“An abrupt tightening of monetary policy today would not lower the currently high inflation rates but would serve to slow down the economy and reduce employment over the next couple of years and thereby reduce medium-term inflation pressure.
“Given our assessment that the medium-term inflation trajectory remains below our 2% target, it would be counter-productive to tighten monetary policy at the current juncture.
“A one-off shift in the level of wages as part of the adjustment to a transitory unexpected increase in the price level does not imply a trend shift in the path of underlying inflation.”
PABLO HERNANDEZ DE COS, BANK OF SPAIN GOVERNOR, NOV 29
“We are unlikely to witness interest rate hikes next year or even for some time thereafter.
“In the current context, it is better, in my view, to err on the side of caution when it comes to adjusting our monetary policy.
“We aim to avoid premature tightening of monetary policy in response to inflation running above the target, when such deviation is deemed to be temporary.”
THE INFLATION HAWKS
ISABEL SCHNABEL, ECB BOARD MEMBER, NOV 22
“The risks to inflation are skewed to the upside.
“I certainly wouldn’t pre-commit (to a policy stance) over a too long period of time. That would be a mistake.”
JENS WEIDMANN, BUNDESBANK PRESIDENT, NOV 24
“From my perspective, upside risks clearly dominate (the inflation outlook) and have recently become even more clear.
“Companies’ complaints about labour shortages have increased significantly, particularly in Germany, but also among our European neighbours.
“In the future, such tensions on the labour markets could make it easier for employees and trade unions to push through noticeably higher wages.”
KLAAS KNOT, DUTCH CENTRAL BANK GOVERNOR, NOV 9
“These transitory (inflation) pressures are not necessarily short-lived. In fact, we have come to realize that the inflationary pressures from these sources last longer than initially thought.
“We cannot make long-lasting unconditional commitments that might end up being incompatible with how the inflation outlook develops.”
LUIS DE GUINDOS, ECB VICE PRESIDENT, NOV 30
“In 2022, bottlenecks may last longer than expected. As a result, there’s a risk that inflation will not go down as quickly and as much as we predicted.
“I’m confident that those net purchases will continue throughout next year. Beyond that, I don’t know.”
FRANCOIS VILLEROY DE GALHAU, BANK OF FRANCE GOVERNOR, NOV 22
“Flexibility is at least as important as volume (of asset buys). This is why increasing the net purchases of APP after PEPP is at this stage a possibility, but not yet a necessity. PEPP has been so successful because it offers flexibility in three ways. The first component relates to timing. There is no fixed amount per month. Such flexibility could easily be transferred to the APP.
“We should end PEPP net puchases in March 2022. We will do what we said, and as it is already expected by the financial markets, one should not fear too much “cliff effects”.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa)