On Thursday, the Chief Economist of the European Central Bank (ECB), Philip Lane, stated that policy actions are tightening financial conditions, as reported by Reuters. He added that the ultimate inflation impact of the policy measures taken by the ECB is still in the pipeline.
Lane also expressed that models point to a strong and orderly transmission of the ECB’s policy tightening to the relevant financial and real variables. He said that the ECB is open-minded about the precise scale of the monetary policy tightening that will be needed to achieve the desired outcome. He added that the calibration of the monetary policy stance needs to be regularly reviewed in line with the incoming information about underlying inflation.
The ECB Chief Economist further said that models suggest that reducing the asset portfolio by a normalised cumulative €500 billion reduction over 12 quarters contributes to lowering inflation by 0.15 percentage points and output by 0.2 percentage points. He noted that the tightening is estimated to have already lowered inflation by around 0.2 percentage points in 2022, and inflation is estimated to be around 1.2 percentage points lower in 2023 and 1.8 percentage points lower in 2024 as a result of the tightening.
Lane added that a significant amount of excess savings could dampen the transmission of higher policy rates to the economy and inflation. Following these comments, the EUR/USD pair was last seen losing 0.2% on the day at 1.0670.
In conclusion, the ECB Chief Economist Philip Lane stated that policy actions are tightening financial conditions, and the ultimate inflation impact of the policy measures taken by the ECB is still in the pipeline. He expressed that models point to a strong and orderly transmission of the ECB’s policy tightening to the relevant financial and real variables. He also said that the ECB is open-minded about the precise scale of the monetary policy tightening that will be needed to achieve the desired outcome.
Moreover, Lane said that models suggest that reducing the asset portfolio by a normalised cumulative €500 billion reduction over 12 quarters contributes to lowering inflation by 0.15 percentage points and output by 0.2 percentage points. He noted that the tightening is estimated to have already lowered inflation by around 0.2 percentage points in 2022, and inflation is estimated to be around 1.2 percentage points lower in 2023 and 1.8 percentage points lower in 2024 as a result of the tightening. He added that a significant amount of excess savings could dampen the transmission of higher policy rates to the economy and inflation. Following these comments, the EUR/USD pair was last seen losing 0.2% on the day at 1.0670.
Overall, the comments of the ECB Chief Economist Philip Lane suggest that the ECB is taking necessary steps to tighten the financial conditions and achieve the desired outcome. He also highlighted the importance of regularly reviewing the calibration of the monetary policy stance in line with the incoming information about underlying inflation. Moreover, he noted that the tightening is estimated to have already lowered inflation by around 0.2 percentage points in 2022, and inflation is estimated to be around 1.2 percentage points lower in 2023 and 1.8 percentage points lower in 2024 as a result of the tightening. This suggests that the ECB’s policy actions are having a positive effect on the economy. However, he also warned that a significant amount of excess savings could dampen the transmission of higher policy rates to the economy and inflation. Following these comments, the EUR/USD pair was last seen losing 0.2% on the day at 1.0670.
