ECB Vice President Luis de Guindos recently shared his thoughts on the central bank’s approach to future rate hikes, emphasizing a data-dependent and cautious stance in light of the uncertainties arising from the financial sector problems in the US and Switzerland.
In an interview, de Guindos stated, “We raised rates by 50 basis points in March and we are open-minded with respect to the future… We are not pre-committing to any action.”
The impact of the US banking system and Credit Suisse events on the Eurozone economy is a pressing concern for the ECB. Over the coming weeks and months, de Guindos noted that the central bank would need to evaluate whether these events would lead to tighter financing conditions.
The ECB Vice President acknowledged that such events increase uncertainty and may result in tighter credit standards in the Eurozone, potentially affecting the economy with lower growth and inflation. However, de Guindos explained that it is too early to determine the intensity of this factor.
Regarding the ECB’s inflation target, de Guindos emphasized the importance of a timely return to 2% inflation within the two-year projection horizon and highlighted the crucial role of core inflation in achieving this goal.
He stated, “Headline inflation will decline quite rapidly over the next six to seven months as the base effects play in favor of a rapid reduction in inflation… What we want to see is a steady and clear convergence towards the 2% target. In that respect, core inflation is going to be key. It is very difficult to converge towards the 2% target in a sustainable way without a clear decline in core inflation.”
