The member of the Executive Committee of the European Central Bank (ECB), Fabio Panetta, declared on Thursday that “we need to bring inflation back to our 2% target as soon as possible, but not before“.
The medium-term inflation outlook is clear upside risks.
It is justified further tightening of monetary policy.
We must carefully calibrate our monetary policy to ensure that inflation returns to target on a lasting basis, while guiding market expectations and limiting excess volatility.
our position should not be based on a one-sided view of the risks.
We must avoid excessive focus on short-term developments and take full account of risks.
The neutral interest rate provides limited guidance in this regard.
We must also be prepared to deal with issues relating to guarantees.
I prefer the concept of a consistent rate with the goal of neutral rate.
Maintain ample liquidity in the system will help to ensure the proper functioning of the money market.
Be prepared to intervene in a timely manner to counter unjustified market failures, should they arise.
Guarantee the absorption of the amortizations of the TLTRO before fully reinvesting the principal payments.
A controlled reduction is preferable -in which only redemptions above a limit are not reinvested- to active sales.
A higher than expected rate hike can increase volatility and have a greater impact in the current high leverage environment.
We have to pay close attention to make sure we don’t amplify the risk of a prolonged recession.
Our policy rate remains an adequate marginal normalization instrument.
If these larger-than-expected increases are interpreted as a signal of a higher terminal rate, we could have a greater impact on financing conditions.
We have a comparatively limited knowledge of the effects of reducing the size of our balance sheet financial.
Source: Fx Street