LIMASSOL, Cyprus (Reuters) – The ECB’s monetary policy transmission is working to tame inflation, though material uncertainty persists in the euro area, ECB policymaker Constantinos Herodotou said on Friday.
“The recent increase in energy prices could transmit again to the rest of the economy and have an upward pressure on prices,” Herodotou, who is also governor of Cyprus’s central bank, told a conference in the city of Limassol.
“The liquidity conditions in the euro area banking system is another area to monitor, since it plays a role for transmitting monetary policy and, consequently, affects inflation,” he said.
The ECB has raised its deposit rate to a record high 4% but has signalled a pause for the months ahead on tentative signs inflation is coming under control. Headline inflation in the 20 countries using the euro eased to 4.3% in September, the lowest pace since October 2021, from 5.2% a month earlier.
Elevated wages and profit margins as well as the profiteering observed in the euro area last year and part of 2023 needed to be monitored closely, though were expected to normalise, Herodotou said.
“These uncertainties are the reason why I believe the ECB Governing Council’s approach to be data-dependent in its interest rate decisions is indeed the right one.”
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(Reporting By Michele Kambas; Editing by Alison Williams and Christina Fincher)