MNI BRIEF: ECB Policy May Cause Short-term Pain - De Guindos

European households and businesses may be set for a “painful” period as policymakers attempt to keep inflation under control at the same time as the euro area economy slows, European Central Bank vice president Luis De Guindos said in an interview Friday in which he indicated that TPI is “ready to use” if needed.

“We will have to take decisions to reduce inflation that might be painful in the short and medium term, but that will be positive for our citizens in the long run,” De Guindos said, adding that reduced demand pressures would not by themselves bring price rises back to the ECB's 2% target. He offered no fresh insight into what future action the ECB could take, pointing to the meeting-by-meeting approach.

De Guindos did not point to specific countries, but was he critical of fiscal support measures -- such as the German VAT cut on gas -- that offer cost relief while doing nothing to reduce energy consumption.

Markets are now pointing to even higher eurozone rates in coming months. Earlier Friday, pricing suggested an additional 200 bps of tightening from current levels by July 2023, putting the deposit rate at 2.75%.