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The time to lower the guard hasn’t yet arrived

Our defiance to signal easing of the monetary policy any time soon might raise eyebrows. 

Let me spell out the reasoning in simple terms for everyone, including those who aren’t economic experts.

The positive drop in inflation observed in the past few months, including November, isn’t enough to declare victory and move to the next stage. We are not out of the woods yet. 

We are increasingly confident that inflation will reach our target in 2025 and that we can accomplish this in a soft-landing scenario. The progress, however, is still subject to risks.

The policy mistake of premature easing would be more significant than the risk of staying tight for too long. Prudence is the key. We’re closely watching the economic indicators but will not make hasty moves.

This isn’t the time to relax our vigilance. 

We still expect a slight uptick in inflation in the coming months. Afterwards, inflation should decline, but only very gradually. Base effects and phasing out energy support measures prevent a faster drop in inflation rates.

We also need to see clear signs of wage moderation. 

For inflation to sustainably converge to our target, we must remain determined and keep the policy at current levels for as long as necessary to secure convergence towards the target.

Growth may keep disappointing. Still, I’m convinced that the monetary policy is not the main drag here. 

We have a competitiveness problem. The problem is the sluggish pace of structural reforms and the slow adaptation of the European economy to the needs of the 21st century. Europe needs to invest and reform to boost productivity in order to secure sustainable economic growth. 

The decision to hold off a discussion on cutting rates is a strategic choice to maintain economic stability and support a gradual return to normality. 

Our choice to stay the course is a measured response to a complex economic scenario. 

It reflects a strategy of caution and careful monitoring.