“A Europe is facing a great sacrifice in the fight against inflation. That’s not the case in other jurisdictions, and we have to be very clear about that so that our stakeholders – who are those to whom we address our policies – understand us.”said Mário Centeno at the conference ‘Challenges of transmitting monetary policy in a changing world (ChaMP)’, taking place in Frankfurt, Germany.
For the governor of the Portuguese central bank, it is important that political decision-makers do not lose people’s credibility in this process.
In his intervention, Centeno admitted that, before the inflationary crisis, the ECB Council reviewed its monetary policy to bring inflation closer to 2% and that it was willing to “temporarily tolerate inflation above 2%”.
“The only thing we weren’t aware of was the fact that we would be approaching 2% from above and not below, because that’s where we were stuck before this whole inflationary process”, stated the governor, referring to a period eight years with very low inflation.
“This was a long process of rising inflation. It took about a year from when we had inflation exceeding 2%, until it reached its peak, in October 2022”said Centeno, who considered it a “quite painful” period due to the sequence of shocks in energy or supply chains.
Regarding action in the hard zone, the Portuguese governor pointed out that the ECB has done its part.
“The ECB has done its part. I think we should be satisfied with what we have done so far, but we were not alone, and the monetary policy transmission channels work in the eurozone because the economic system has helped a lot and because our fiscal policies were much more contained than in other jurisdictions”, he pointed out.
In this sense, Mário Centeno highlighted the impact of the job market in Europe.
“I honestly think that Europe is today living off a dividend from the labor market, due to the way it has adjusted over the years and all these crises. The current reality is that the euro zone is not growing, it has been investment has been stagnant for a year and a half”, he lamented.
The former Portuguese Finance Minister also referred to the ECB’s forecasts for the ratio between credit and GDP, which should reach “the lowest levels ever recorded in the euro area” and that the trend should not change even with the bringing inflation closer to the 2% target.
Eurozone inflation slowed by two tenths in March to 2.4%, while underlying inflation – which excludes energy and food as they are more volatile – also fell by two tenths to 2.9%, according to data from the Cabinet Office. EU statistics, Eurostat.
In July 2022, the ECB began the cycle of interest rate hikes with the aim of controlling inflation. More than a year later, in October 2023, he took the first break in this rapid cycle of increases, but soon warned that a cut in interest rates would still take time due to inflationary risks.
Read Also: Centeno does not rule out the ECB cutting interest rates by 50 basis points in June
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