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Are we there yet? No, definitely not

Last week’s slowdown in the pace of our tightening does not mark the end of the path, nor does it say that job’s done. 

The development of core inflation, the continued buildup of wage pressures, and high-profit margins call for vigilance and reconfirm the need to continue on our path.

Nevertheless, signs of peaking inflationary pressures, tightening of credit standards and the resilience of the European financial sector to the recent volatility in financial markets allowed us to return to what can be called “business as usual”. 

But as I said, the battle against inflation is far from won and there’s a plenty of ground left to cover.

Based on today’s data, we will have to keep raising interest rates for longer than anticipated. So slowing down the pace to 25 bps is a step that will allow us to go gradually higher for longer. Should that be necessary and warranted by incoming data.

We will wait to see what the data shows in the coming months and how fiscal policy develops. 

The reluctance of European governments to exit non-targeted fiscal measures could create a problem to which this policy would have to respond unequivocally. It would be desired to avoid that.

The jury is still out there.

The recent bank lending survey confirmed that the transmission of our policies is working. Nevertheless, we can only assess the cumulative impact of higher interest rates and tightening conditions on financial markets after September. Therefore, our September forecast will be the earliest date to answer how effective our measures are and whether inflation is moving towards the target.

The answer will come in autumn.