In an interview with Financial Times, ECB Governing Council member Pierre Wunsch mentioned that the central bank is waiting for both wage growth and core inflation to decrease in conjunction with headline inflation before considering a pause.

Wunsch stated, “I would not be surprised if we had to go to 4 percent at some point.” He emphasized that ECB aims for a soft landing, and “nobody is going to err on the side of destroying the economy for the sake of destroying the economy.”

“But I have absolutely no indication that what we are doing (on interest rates) is too much,” he added.

Regarding rate hikes, Wunsch clarified, “I’m not a fetishist. I’m not going to hike rates even in a recession just because we have 2.3 percent or 2.1 percent inflation in the two-year forecast. But I’m not seeing inflation numbers going in the right direction yet.”

He also pointed out that if wage agreements persist around a 5 percent growth for an extended period, inflation may not return to 2 percent on a structural basis.

ECB Governing Council member Olli Rehn emphasized the importance of maintaining a proactive, balanced policy in the current monetary policy landscape. According to Rehn, the central bank has moved into an area that restricts aggregate demand, and he argued against abandoning this stance prematurely.

Rehn stated, “In monetary policy, we have moved into an area that restricts aggregate demand, and there is no reason for us to abandon it or exit it prematurely.” He added, “The path to sustainable growth is narrow, but it can be traversed with a proactive, balanced policy.”

Rehn further explained that by adhering to this approach, “we can achieve our goals without causing unnecessary costs to the economy – also because now the central banks are independent and not subject to political pressure, as in the 1970s.”

ECB Vice President Luis de Guindos recently highlighted the persistence of core inflation, stating that it may be more persistent than markets anticipated. He emphasized that “core inflation remains very sticky,” and while he believes it will eventually come down, the starting point is very high.

De Guindos also stressed that ECB will continue to communicate monetary policy on a meeting-by-meeting basis, with a data-dependent approach, rather than shifting to a forward-guidance strategy for several months. He added, “I believe that the current approach will be maintained for a few months until the evolution of inflation and the effects of our measures become clearer.”

In a separate statement, ECB Governing Council member Ignazio Visco echoed de Guindos’ concerns regarding stubborn core inflation. He emphasized the need for caution when setting policy, recommending that decisions be made on a meeting-by-meeting basis.

In ECB’s minutes of its March 15-16 meeting, it was revealed that “a very large majority” of members agreed with Chief Economist Philip Lane’s proposal to raise key interest rates by 50 basis points. This decision was made “in line with the intention the Governing Council had communicated at its last monetary policy meeting.”

The minutes noted that “following the announced intended interest rate path was seen as important to instil confidence and avoid creating further uncertainty in financial markets.” However, “some members would have preferred not to increase the key rates until the financial market tensions had subsided and to conduct a comprehensive re-evaluation of the stance at the Governing Council’s next monetary policy meeting, in May.”

Looking ahead, members concurred on the importance of a data-dependent approach for future policy rate decisions amid the “elevated level of uncertainty.” In this context, the minutes stated that “it was underlined that if the inflation outlook embedded in the March ECB staff projections were confirmed, the Governing Council would have further ground to cover in adjusting the monetary policy stance to ensure a timely return of inflation to target.”

Full ECB minutes here.

ECB Governing Council member Klaas Knot has expressed concerns about the current high inflation rate, suggesting that the current mildly restrictive monetary policy may not be enough to counter it.

Knot stated, “We are now in what I would call mildly restrictive territory with policy rates but inflation is not mild. Inflation is still much too high.”

Knot added that the underlying inflation rate, which has been creeping up towards six per cent, needs a sufficiently restrictive stance to be countered. “Where is sufficiently restrictive, I don’t know but clearly not where we are today,” he said.

The ECB policymaker also noted that it is too early to discuss a pause in tightening measures. “For a pause, I would really need to see a convincing reversal in underlying inflation dynamics,” Knot explained.