ECB’s de Guindos: If incoming data confirms our baseline, we can expect further rate cuts
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Dhwani Mehta
webinar date
15 Jan @ 08:32 (GMT+0)

ECB’s de Guindos: If incoming data confirms our baseline, we can expect further rate cuts

European Central Bank (ECB) Vice President Luis de Guindos said on Wednesday that “if incoming data confirms our baseline, we can expect further rate cuts.”

Further comments

Risks to economic growth remain tilted to the downside.

The disinflation process is well on track.

We are not pre-committing to a particular rate path.

If incoming data confirms our baseline, we can expect further rate cuts.

But high level of uncertainty calls for prudence in terms of rate-setting.

The balance of risks has shifted from concerns about high inflation to concerns about low growth.

Severe global trade frictions could increase fragmentation of the world economy.

Renewed geopolitical tensions could also affect energy prices.

Market reaction

EUR/USD keeps its range near 1.0300 following these comments, down 0.07% on the day.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.