ECB deputy says institution will raise interest rates until price stability is guaranteed

The vice president of the European Central Bank (ECB), Luis de Guindos, said that the institution will continue to raise interest rates “until we ensure that inflation is in line with our definition of price stability”. According to him, this will depend on the indicators, the evolution of inflation, economic conditions, demand and energy prices. The statements were made during an interview granted on the 3rd to the website Politicalwhich was published in its entirety this Tuesday (8) on the ECB’s website.

Guindos defended the strategy of reacting to the indicators, in the face of a moment of “very high uncertainty like the current one”. At the next meeting, the decision will be based on the updated December forecasts and the preliminary estimate of November inflation in the euro zone, among other indicators, he said. The leader believes that consumer inflation should remain fluctuating at the current level of 10.7% in the coming months in the euro zone. “It will start to fall in the first half of next year, but, on average, the headline index and core inflation will remain very high.”

The ECB deputy was asked about the risk of recession. He recalled that in the September projections a recession was projected only in the downside scenario, not in the base case. Since then, however, “the data we’ve been getting hasn’t been good in terms of growth.”

Guindos sees a “high probability” of a decline in the Eurozone’s Gross Domestic Product (GDP) in the fourth quarter of 2022. The decline in GDP, in the quarterly comparison, should continue in the first quarter of 2023, which would constitute a technical recession. “But I don’t think it will be very deep,” he said. The slowdown and the “possible technical recession” are driven by several factors, such as energy prices, uncertainty with the war in Ukraine, as well as the negative effect of inflation on investment and household consumption, through a reduction in income. real, he recalled. Guindos said that the improvement in the perspective of growth goes through the fight against inflation, in the current scenario.

He was also asked about fiscal policy in the region. And he recalled a report by the European Fiscal Council, according to which most of the fiscal measures adopted by governments in the region “were not targeted enough”.

Guindos also considered that financial stability “has deteriorated significantly in the last six months, due to the perspective of lower growth and high inflation and the tightening of financial conditions”. The situation for banks, however, is “much more positive than it was ten years ago”, he compared.