The European Central Bank should stick with its “meeting-by-meeting” approach to raising interest rates as it weighs the risks of overdoing tightening, Governing Council member Ignazio Visco said.
(Bloomberg) — The European Central Bank should stick with its “meeting-by-meeting” approach to raising interest rates as it weighs the risks of overdoing tightening, Governing Council member Ignazio Visco said.
“We live in very uncertain times — the range around our projections is extremely large,” the Bank of Italy governor told an audience of students in London on Thursday. “The risk of doing too much is at least as much as that of doing too little.”
Warning that there’s always a danger that financial stability risks “may return,” Visco said that “this is why we should decide meeting-by-meeting on the basis of data.”
One of the more dovish members of the 26-member Governing Council, the Bank of Italy chief’s preference for caution contrasts with the renewed eagerness of some colleagues to talk about future rate increases beyond a possible move at the next meeting on May 4.
Klaas Knot of the Netherlands, for example, said in an interview with the Irish Times published Thursday that the ECB may need to keep hiking in June and July.
Visco said that the consumer-price surge in the euro area remains one driven by supply, unlike that in the US.
“There is in a sense a difficulty in identifying excess demand as a possible culprit of inflation in our area,” he said. “In the euro area we still are below trend, and in both goods and services.”
Looking back on how inflation developed, Visco acknowledged a “mistake” in not fully appreciating the inflation effects from supply bottlenecks, though he insisted the shock of the war in Ukraine wasn’t foreseeable, and that the ECB wasn’t too late to start raising rates.
To fully defeat inflation, monetary policy mustn’t be “the only game in town,” Visco said. It should be supported by fiscal policy and also by engaging with “social partners,” he noted.
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