ECB Governing Council member, Pablo Hernandez de Cos, expressed his thoughts on the direction of ECB’s monetary policy during a speech yesterday.

In his remarks, de Cos stated, “We think that we still have some way to go in tightening monetary policy, although we also think that we are closer to the end.” This suggests a continued commitment to ECB’s policy of monetary tightening, albeit with the recognition that this phase might be nearing its completion.

Furthermore, de Cos underscored the necessity of maintaining restrictive interest rates over a substantial duration. The intention behind this strategy, he explained, is to ensure ECB’s objectives are achieved in a consistent manner over time.

ECB President Christine Lagarde said that Russia invasion of Ukraine will have “consequences” for growth. However, “even in the bleakest scenario, with second-round effects, with a boycott of gas and petrol and a worsening of the war that goes on for a long time — even in those scenarios we have 2.3% growth.” Hence, “we are not seeing elements of stagflation now,” she said.

Lagarde also reiterated that the US and Eurozone are in “difference universes”, at a “different stage” in the economic cycle, with “different starting points”. “We in the euro area are at negative rates, while the U.S. never went below zero.”

In the accounts of Oct 24-25 monetary policy meeting minutes, ECB acknowledged that “recent data and survey results had been generally somewhat weaker than expected”. However, the accounts also noted that incoming data were “still considered consistent with an ongoing broad-based expansion of the euro area economy” as embodied in September staff projections. The weaker growth momentum in 2018 “pointed to an economy that was growing more in line with potential”.

Nevertheless, the accounts also noted that weaker growth pattern in H2 “would have a mechanical impact, via the carry-over effect, on the estimate for annual growth in 2019”. Little information was currently available for Q4. “December 2018 Eurosystem staff projections, which would be available at the Governing Council’s next monetary policy meeting, would provide an occasion for a more in-depth assessment.”

On external risks ECB policymakers “considered that the uncertainties related to global factors remained prominent, and the risks related to the external environment were assessed to be tilted to the downside.” Risks include “rising protectionism, vulnerabilities in emerging markets and financial market volatility.” Also, the account noted that the limited impact from trade tensions was possible because “an adverse impact from trade tensions on more open economies was being offset by the presently more buoyant imports, particularly in the United States.”

On inflation, ECB policymakers consider “medium-term outlook for inflation, as contained in the September 2018 ECB staff projections, had been broadly confirmed.” The disappointing development in core inflation was “mainly due to services prices”. And, “it was recalled that there were a number of special factors underlying services price developments, which were mainly related to administered prices. An increase in underlying inflation for the euro area was to be expected when these base effects disappeared.

Overall, “members widely agreed that patience, prudence and persistence with regard to monetary policy remained warranted”.

Full accounts here.

In the accounts of July 15-16 monetary policy meeting, ECB warned that “recent positive market developments were not fully backed by economic data”. They might be based on “overly optimistic expectations” about the Next Generation EU recovery package, and progress on vaccine development.

“A highly accommodative monetary policy stance continued to be appropriate on account of the subdued medium-term outlook for price stability, characterised by inflation expectations standing near historical lows and significant economic slack. Careful monitoring was warranted while uncertainty about economic outlook remained elevated. Current monetary stance was seen as “adequate” and a “recalibration” was “not deemed necessary”

Looking ahead, additional information, including more hard data releases, new staff projections and news on fiscal measures, would become available by September. That would provide “more clarity regarding the medium-term inflation outlook”. “In any case, at its September meeting the Governing Council would be in a better position to reassess the monetary policy stance and its policy tools.”

Full meeting accounts here.