MNI BRIEF: Centeno Dovish On Pace, Scale Of ECB Normalisation

ECB asset purchases “could” stop in the early part of Q3 2022, Bank of Portugal governor Mario Centeno said in a speech Friday, with interest rates rising “some time later.” But patience and gradualism remain key, with the costs of aggressive monetary policy or too rapid normalisation outweighing the benefits.

Debate should focus not on when APP ends and rates rise, Centeno added, but on the process of monetary policy normalisation, its duration and its magnitude. “[T]he truth is that normalization has already started from the moment net purchases started to decrease, still in 2021 and continuing in 2022,” he said.

Inflation should slowly converge towards the ECB’s 2% objective over the medium-term as imbalances are gradually resolved and uncertainty dissipated. The are as yet no signs of inflation expectations de-anchoring, Centeno said, although close monitoring is warranted. By contrast, ECB Executive Board member Isabel Schnabel said earlier this week that immediate action is needed to counter the rising risk of inflation expectations de-anchoring to the upside.