Governor Peter Kažimír: Keep calm, summer’s almost here

Many ask the European Central Bank the same question: “Why wait for June when you already have most of the recipe ingredients?”

Allow me to explain why rushing isn’t smart and beneficial. For you and the economy.

The devil is, traditionally, in the details.

Inflation is coming down, and we’re progressing well towards our target. That’s enhancing confidence, which is gradually building up.

But we’re not there yet.

The slowdown in inflation remains fragile. We can’t take it for granted. Upside inflation risks are alive and kicking.

Wage pressures show signs of moderation, but remain far too high and can prove more inflationary if productivity growth does not start picking up. Gas prices have fallen to lows we have seen a long time ago, but developments could easily reverse.

The green transition will affect the inflation path in the medium term in ways we do not currently account for properly.

Let me add one important element: looser fiscal policy in Europe. The outlook here looks uncertain and could carry upside inflationary risk.

We need to stay cautious and wait for more hard evidence where we can get it. Wait for and analyse additional data, the additional confidence boost.

Important pieces of the puzzle will arrive in the next couple of months.

We will learn a bit more in April, but only in June, with new forecast at hand, will the level of confidence reach the threshold.

This doesn’t mean we won’t discuss how to dial back our restrictive policy stance in the meantime.

On the contrary, we will use the weeks ahead to do just that. We will investigate how to design a good easing strategy. How to proceed to safeguard inflation’s return to the target while helping the economy rebound in an uncertain global environment.

As for the exit strategy, I prefer a smooth and steady cycle of policy easing. For that, we have to be confident about the first step.

Like descending from the peak’s summit to the base camp.

The current picture clearly favours staying calm for the coming weeks and delivering the first-rate cut in summer.

A decision to cut rates now is still a premature reduction, which would be at risk of pausing or even reversing should some developments not fall into place. That could dent our credibility.

Ultimately, the risk of undershooting our target is still significantly smaller than the risk of acting prematurely.