In an interview with Reuters, ECB Executive Board member Isabel Schnabel remarked that the slowdown to 2.4% in Eurozone’s November flash CPI a “very pleasant surprise.” More importantly, that made “further rate increase rather unlikely”.

Schnabel emphasized the significance of the decline in “underlying inflation”, which has proven “more stubborn”, is now also “falling more quickly than we had expected”. Such trends have bolstered her confidence in achieving ECB’s 2% inflation target no later than 2025.

However, she cautioned against premature victory declarations over inflation, expecting some upticks in the coming months due to fiscal changes and base effects, and not ruling out potential new spikes in energy or food prices.

On the growth front, Schnabel acknowledged mixed signals. While some hard data points are concerning, softer indicators, like PMI, are showing signs of stabilization and are “giving us hope.”

She forecasts a gradual uptick in growth next year, driven by rising real incomes, which should boost confidence and consumption. Regarding the labor market, she noted some softening but does not anticipate a significant deterioration or a deep, prolonged recession.

Full interview of ECB Schnabel here.

The monetary policy meeting accounts of March ECB meeting revealed debates regarding the extent of the extension in the calendar based leg of the forward guidance. Back then, ECB said interest rates will be kept at current level at least through the “end of 2019”, changed from “summer of 2019”.

A numbers of members voiced an initial preference for extending the forward guidance through the “end of the first quarter of 2020”. That would be “more in line with the markets’ pricing of a first interest rate increase”. But others argued that “until the end of 2019” was “more consistent with the baseline scenario underlying the projections that foresaw a rebound of the economy in the second half of 2019”. Also, “in view of the high prevailing uncertainty, a data-driven gradualist approach was seen as most appropriate”

On the economy, the baseline scenario was a more protracted “soft patch” followed by a return to more solid growth. However, “uncertainty remained elevated” and it was “unclear how persistent the current soft patch would turn out to be.” Also “downside risks to the growth outlook continued to prevail despite” despite downward revision in growth forecasts in March.

And, it was highlighted that “growth projections had been revised down in a number of consecutive projection exercises and that growth might not be mean-reverting, as typically assumed in projections.” Uncertainty might also turn out to be “more persistent than expected”. Risks surround Eurozone growth outlook were “on account of the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets.”

Though, it’s also emphasized that “while the growth momentum was weaker, it remained positive”. And, neither ” the euro area, nor the global economy, was currently in recession and the probability of a recession remained relatively low.”

Full accounts here.

ECB Executive Board member Fabio Panetta delivered a speech today, emphasizing the importance of “persistence” over “level” in executing the bank’s monetary policy given the present economic context.

Panetta stated, “In the current context where policy rates are around the level necessary to deliver medium-term price stability, I will argue that monetary policy may operate not just by increasing rates but also by keeping the prevailing level of policy rates for longer. In other words, persistence matters as much as level.”

The ECB official highlighted two primary approaches to the bank’s disinflationary monetary policy: the ‘level’ approach, which involves raising the policy rate beyond its current position, risking a potential need for faster and earlier cuts, and the ‘persistence’ approach, which advocates for maintaining the policy rates at their prevailing level for an extended duration.

“Emphasizing persistence may be particularly valuable in the current situation,” said Panetta, “where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced, and economic activity is weak.”

He warned against the pitfalls of an aggressive rate hike strategy, stating that it “might amplify the risk associated with overtightening, which could subsequently require rates to be cut hastily in a deteriorating economic environment.”

By contrast, Panetta argued, the ‘persistence’ element allows for greater flexibility, granting the central bank more time to assess the effects of its past policies and fine-tune its stance as new information emerges.

He added that by underlining the importance of this ‘breathing space’, stating, “This is crucial given that – as I said before – the transmission of our monetary policy may actually turn out to be stronger than our projections indicate.”

Full speech of ECB Panetta here.