If “upward shocks to inflation” were to occur in the euro area starting from current levels, which remain “restrictive”, the ECB could manage them through “a slower pace of rate reduction”, compared to the basic scenario that emerges by market expectations on the interest rate curve. This was stated by the ECB’s chief economist, Philip Lane, speaking at the national conference of the Irish Banking Federation. Instead he basically ruled out that the ECB could find itself having to reverse its monetary course and start increasing rates again.
“At the same time, an (official deposit) rate of 3.75% also offers greater protection against downside risks, compared to remaining at 4%,” he added in reference to the institution’s decision last week to cut the rates of 25 basis points.
Lane did not add any significant elements for future decisions, reiterating that they will be taken from time to time based on the evolution of the data and that given the high level of uncertainty the ECB will weigh every single element.
“What we’re trying to say is that we will be agile and that if we need to do more we will do more, more. And if we need to do less we will do less. We don’t want to convey to the markets or the financial system a message of greater certainty than what actually we have,” he explained.
“We are determined to ensure that inflation returns to our 2% target in a timely manner and will keep rates at sufficiently restrictive levels for as long as necessary to achieve this goal,” Lane said. “We are not committed to any particular predetermined path of rates”.
