Ignazio Visco openly criticized hawkish European Central Bank colleagues for making statements about future increases in borrowing costs when officials had agreed not to give such guidance.
(Bloomberg) — Ignazio Visco openly criticized hawkish European Central Bank colleagues for making statements about future increases in borrowing costs when officials had agreed not to give such guidance.
The outburst by the Bank of Italy governor, in added remarks at the end of a speech in Rome on Wednesday, is a pointed public attack that hints at rising tensions behind closed doors in advance of next week’s decision.
“Uncertainty is so high that the Governing Council of the ECB has agreed to decide ‘meeting by meeting’, without ‘forward guidance,’” he said. “I therefore don’t appreciate statements by my colleagues about future and prolonged interest rate hikes.”
Visco, one of the ECB’s more dovish officials, is among the final speakers before a pre-decision blackout period begins at the end of Wednesday. A meeting that was intended to seal a half-point rate increase has become an intensified debate over how many further steps to deliver.
Most notably, Austrian central-bank Governor Robert Holzmann suggested that the hike next Thursday will be the first of four such moves — a tightening campaign that would bring the deposit rate up to 4.5%. His Belgian colleague, Pierre Wunsch, on Friday openly acknowledged that market expectations of reaching 4% may prove accurate.
“I don’t know, we don’t know enough,” about the prospect of high and prolonged inflation, Visco said. He cited words by Eugenio Montale, the Italian poet who won the Nobel Prize for Literature: “what we are not, what we don’t want.”
The public disagreement has deepened since data last week that showed a measure of underlying inflation surged to 5.6%, the fastest in the history of the euro. On Monday, Holzmann speculated on future hikes, while Chief Economist Philip Lane called for a more cautious approach to decisions.
The same day, Nomura raised its ECB forecast, predicting the rate will now reach as high as 4.25% — with 50 basis-point moves in March, May and June, followed by a final quarter-point increase in July.
Earlier in Visco’s speech, he said that monetary policy needs to remain data driven in order to manage continuing global and geopolitical uncertainty.
“The serious geopolitical situation makes it difficult to forecast future macroeconomic trends,” he said. “Monetary policy will therefore have to continue to be prudent and driven by the data that is available, so as to bring inflation back to 2% in the medium term without putting financial stability at risk and minimizing the effects on the fragile recovery.”
The speech took place just as revised data was published showing that euro-area gross domestic product failed to grow at the end of 2022 after worse-than-expected performances in Germany and Ireland. The initial report pointed to a 0.1% increase in the fourth quarter.
The Italian governor also said that the ECB will be forced to continue to raise rates if “increases in wages and in profit margins are not coherent with a rapid return to price stability.”
He encouraged governments to work hand-in-hand with the ECB. The goal is to “avoid a damaging rise in prices and salaries and instead to increase the development of the economy,” he said.
(Updates with GDP in third-to-last paragraph)
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