ECB says it is ready to adjust interest rates as economy shifts
The European Central Bank said it is ready to change interest rates if the economy shifts. Vice-President Luis de Guindos stressed that policymakers will stay flexible when facing global uncertainty.
De Guindos commented in a Wednesday interview with Die Welt, just days after the ECB kept rates unchanged for the second meeting in a row. He said the current borrowing costs are right for now, but the Governing Council will act if inflation or growth changes.
ECB leaders keep options open on interest rates
Luis de Guindos said the European Central Bank is responsible for stabilizing prices in all countries that use the euro and must remain independent of political influence. He explained that people and markets will lose trust if the government interferes in monetary policy. Without this trust, inflation will skyrocket and be difficult to control.
De Guindos added that the bank must remain calm, act carefully, and avoid sudden changes because financial markets are volatile and the central bank should never copy their behavior.
In the most recent meeting, all ECB Governing Council members agreed to maintain the current interest rates. This decision shows that policymakers believe the current rates fit the present economic situation because it’s the second meeting in which the bank hasn’t made changes. The Council is also confident its policies are working because inflation is closer to the Bank’s target of 2%.
Inflation may have eased, salaries and real incomes improved, but households aren’t spending as much as the ECB expects. Many families are likely spending cautiously because they worry about the future, rising taxes, and job security.
Governments are also facing higher defense budgets and social programs. On top of that, the global environment is dealing with ongoing conflicts, rising political tensions, and trade disputes between the United States, China, and Europe. All these factors combined weaken exports and slow economic growth.
De Guindos also spoke about the rising budget deficits in countries like France, and investors fear the euro area might face financial difficulty similar to the past crisis if these deficits continue. However, he said yields on government bonds remain stable without signs of serious stress or liquidity shortages.
Policymakers disagree on the next rate move
The Governing Council still has internal differences because some members of the European Central Bank disagree on what the next interest rates should be. Executive Board member Isabel Schnabel said it is not safe to assume that the inflation problem is fixed just because recent progress looks decent. She wants the rates to remain the same because prices could skyrocket if the bank reduces them too early.
Last week, Bundesbank President Joachim Nagel also said households and businesses could lose trust in the ECB if it cuts costs before inflation is fully under control, causing it to rise again.
The opposition has different views. Governor of the Banque de France, François Villeroy de Galhau, said closing the door to lower rates would limit the bank’s ability to react if the economy slows down even more. He said Europe is still facing trade frictions and geopolitical tensions that need policy changes to manage.
Luis de Guindos tried to unite both sides by saying no one can predict the future because changes in trade, political tensions, conflicts, and financial market swings are all affecting Europe at the same time. He even joked that if anyone could predict the next six months with certainty, the ECB should hire that person immediately.
Luis de Guindos explained that the Governing Council will continue to monitor the economy’s progress and adjust its decisions accordingly. Still, it has to wait, watch, and prepare for different scenarios, but price stability will always be the top priority.
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