In a twitter exchange, ECB chief economist Philip Lane emphasized “the first priority is to contain the virus – if there is a sustained surge in cases, this will damage consumer and investor confidence ”

“Containing the virus is the most important policy objective. Our baseline allows for some periodic resurgence of the virus until a full-scale medical solution is found,” he added.

“The baseline scenario in our staff projections indeed factors in that a medical solution is found over the course of next year. This would support a recovery in the service sector and put upward pressure on service sector inflation”.

ECB Vice President Luis de Guindos said in a speech that Eurozone economy is “continuing to grow” and the growth is “broad-based across countries and sectors”. He added that “during this recovery, the countries that were most affected by the crisis have regained competitiveness thanks to a combination of accommodative monetary policy, fiscal consolidation and structural reforms.”

However, de Guindos warned that “challenges remain in the form of low trend growth compared with other advanced economies, and persistently high public and private debt levels in a number of euro area countries.”. He urged further efforts to “strengthen productivity growth and boost productive investments to lift long-term potential growth.”

ECB Executive Board member Fabio Panetta said in a speech that the high inflation in Eurozone is “mostly due to global factors – including the increase in the prices of oil, gas and other commodities – over which monetary policy has little leverage.” And it “does not fundamentally result from an economy that is running above potential”.

Therefore, “asking monetary policy alone to bring down short-term inflation while inflation expectations remain well anchored would be extremely costly”. Monetary tightening would not affected imported energy and food prices, but “massively suppress domestic demand to bring down inflation”.

“And with the current levels of imported inflation, in order to hold headline inflation to 2%, we would need domestic inflation to be deeply negative. In other words, we would induce domestic deflation,” he added.

Panetta suggested that “fiscal policy can help mitigate the challenge of higher inflation by containing the effects of higher energy prices”. On the other hand, “Monetary policy will play its role, adjusting policy in line with the medium-term inflation outlook. ”

Full speech here.

ECB Governing Council member Peter Kazimir highlighted emphasized the importance of maintaining a flexible monetary policy stance beyond an initial rate reduction possibly in June. He underscored that the decision to lower rates in June should be viewed as a recalibration in response to improving economic conditions, rather than a firm commitment to continued easing.

“June is an opportunity to recalibrate our approach in light of improving economic conditions. Let’s be clear: We are not pre-committing to a definite path post-June,” Kazimir stated.

He elaborated, “Even after the first rate cut, our monetary policy will remain restrictive; it needs to.”

Kazimir also addressed the broader implications of easing monetary policy, clarifying that “The notion of easing doesn’t imply a commitment to specific future cuts but rather an openness to respond in kind, should the economic data advocate for it.”

Moreover, Kazimir cautioned about the vulnerability of the economy to unexpected shocks, emphasizing the necessity for ECB to maintain its agility in policymaking.

ECB Vice President Luis de Guindos said today, “we can so far dismiss the possibility of stagflation because even in the weakest scenario we are looking at growth of around 2% in 2022.”

De Guindos also said higher energy prices are pushing inflation to record high. However, There is no indication that inflation expectations are becoming “deanchored”.