ECB Governing Council member Francois Villeroy de Galhau said today, “starting the increase in interest rates faster does not mean that (the cycle of increases) will end higher”.

Regarding the new Transmission Protection Instrument (TPI), Villeroy said, “if needed, we will be as determined in activating (the programme) as we have been in setting it up, and there are no pre-defined limits on the amount of possible purchases.”

Another Governing Council member Pablo Hernandez de Cos said the political crisis in Italy this week was not the reason behind the creation of anti-fragmentation tool. He added that the rate decision for September will be data-dependent.

ECB Governing Council member Klaas Knot said, “My worry is still inflation, inflation, inflation… As long as the risks to our inflation outlook are so clearly tilted to the upside, I think the risk of us doing too little is clearly more pronounced than us doing too much… We should not give up too early and not cry victory too early.”

Knot also said a recession is “not a foregone conclusion”. “If you look at Germany, where actually the economy is doing better than then was feared, it’s not a foregone conclusion that we will get a recession”, he said. “We will get weaker growth, that’s for sure. But we also need weaker growth to bring inflation back to target.”

ECB Governing Council member, Dutch central bank chief Klaas Knot, said “there is very good reason to expect a robust recovery in the second half of the year.” And, “if the economy develops according to our baseline, we will see better inflation and growth from the second half onwards.”

“In that case, it would be equally clear to me that from the third quarter onwards we can begin to gradually phase out pandemic emergency purchases and end them as foreseen in March 2022,” he added.

Knot was also comfortable with higher nominal rates, if they are “entirely due to higher inflation expectations”. “To the extent that higher nominal yields are driven by better inflation and growth prospects, to me that’s entirely benign.”

ECB raises the three key interest rates by 50bps today as expected. The main refinancing, marginal lending, and deposit rates are 2.50%, 2.75% and 2.00% respectively. The Governing Council expects to “raise them further” based on “substantial upward revision to the inflation outlook”.

Also ECB noted that “keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.” Future policy decisions will continue to be “data-dependent”, following a “meeting-by-meeting approach”.

Reinvestment under the APP purchases will continue until the end of February 2023. The portfolio will then decline at a “measured and predictable pace” subsequently, amount to EUR 15B per month on average until Q2 2023. Reinvestment under PEPP will continue at least until the end of 2024.

Based on new economic projections, inflation is expected to reach 8.4% in 2022, then fall to 6.3% in 2023, and then 3.4% in 2024, and 2.3% in 2025. Core inflation, excluding energy and food, is projected to be at 3.9% in 2022, 4.2% in 2023, 2.8% in 2024, and then 2.4% in 2025. The economy is projected to grow 3.4% in 2022, 0.5% in 2023, 1.9% in 2024, and then 1.8% in 2025.

Full statement here.