Christine Lagarde, Luis de Guindos: Monetary policy statement (with Q&A)

Christine Lagarde, President of the ECB, together with Luis de Guindos, Vice-President of the ECB, delivered a Monetary policy statement at a press conference on 4 May 2023, followed by a round of Q&As in the context of its latest Monetary policy decisions.
In its Monetary Policy Statement, which outlines the current state of the euro area economy and the ECB’s plans for monetary policy going forward, the ECB notes that the inflation outlook continues to be too high for too long, and as a result, the Governing Council has decided to raise the three key ECB interest rates by 25 basis points.
Indeed, the incoming information broadly supports the assessment of the medium-term inflation outlook that was formed at the previous meeting. While headline inflation has declined over recent months, underlying price pressures remain strong. The ECB’s past rate increases are being transmitted forcefully to euro area financing and monetary conditions, while the lags and strength of transmission to the real economy remain uncertain.
The ECB’s future decisions will ensure that the policy rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to the two per cent medium-term target and will be kept at those levels for as long as necessary. The ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction. The key ECB interest rates remain the primary tool for setting the monetary policy stance. In parallel, the ECB will keep reducing the Eurosystems APP portfolio at a measured and predictable pace. The Governing Council expects to discontinue the reinvestments under the APP as of July 2023.
The euro area economy grew by 0.1 per cent in the first quarter of 2023, according to Eurostats preliminary flash estimate. Lower energy prices, the easing of supply bottlenecks and fiscal policy support for firms and households have contributed to the resilience of the economy. The ECB’s policy rate increases are being transmitted strongly to risk-free interest rates and to the financing conditions for firms, households and banks. For firms and households, loan growth has weakened owing to higher borrowing rates, tighter credit supply conditions and lower demand. The latest bank lending survey reported a tightening of overall credit standards, which was stronger than banks had expected in the previous round and suggests that lending may weaken further. Weak lending has meant that money growth has also continued to decline.
During the Q&A session, the ECB President and Vice-President addressed several questions. They noted that the ECB is not Fed-dependent and will continue to focus on its objective of achieving a timely return of inflation to the two per cent medium-term target. The ECB’s future decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission. The ECB is not pausing in its hiking journey and will continue to increase rates to achieve its target. The ECB’s decision to raise rates by 25 basis points was based on a variety of views, with some governors suggesting that 50 basis points was appropriate. The ECB believes that it has more ground to cover and will continue to tighten policy as necessary. The ECB is also monitoring the US regional lender banking crisis but believes that the situation is not extrapolatable to the European banking industry.