Not the end of the road, more needs to be done

Last week’s decision to continue hiking the European Central Bank’s key interest rates was a no-brainer for me.

Looking at the inflation outlook for the euro area for the coming two years, a continuation of monetary policy tightening is the only reasonable way ahead. Anything else is out of the question. June’s 25 basis point hike it’s not the end of the road. For starters, we need to deliver another rate hike in July and move further into the restrictive territory.

I am aware, together with my colleagues, of all the negative impacts of rising interest rates on households and companies. It affects how much they can borrow from a bank or even get a loan. But high inflation, when not addressed, represents a much more significant threat to the people and the economy. It would dent future success.

Risks continue to be an issue, on the downside for the growth outlook and the upside regarding inflation. Upward inflation risks are still substantial, linked to the labour market situation, food prices and, last but not least, profit margins.

We’re not done. I’m waiting for September for a more comprehensive view and analysis of the cumulative effect of all our measures on inflation and the economy. Failing to do what’s necessary represents a much more significant risk than the risk of overtightening.

I would almost forget. Fiscal policy in many European countries, including Slovakia, are not precisely helping in our fight with high inflation. I would like to avoid a situation where we – the European Central Bank – would be forced to react to neutralise impact of broad fiscal measures undermining our efforts to bring inflation back down to the target.

All in all, my baseline scenario for July is another hike.

As for September action, it’s open and remains to be seen what will be done. What’s already clear today, is that we must stay resolute in our determination to combat high inflation as obliged by our mandate.

Incoming data, updated inflation and economic outlook will decide our actions after the summer break.