Major ECB officials affirm neutral policy stance as inflation projections remain anchored

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There have been remarks from several European Central Bank (ECB) officials during the European trading session on Friday regarding the current state and outlook on inflation and interest rates.

There have been remarks from several European Central Bank (ECB) officials during the European trading session on Friday regarding the current state and outlook on inflation and interest rates. Also, a few members talked about the likely consequences of external environment on the Eurozone economy and monetary policy.

ECB policymaker and governor of Bank of France François Villeroy de Galhau

The ECB has no FX target, but it's important for activity.

We are in a good place on inflation.

Downside inflation risks are probably more significant.

ECB official and Finnish Central Bank Governor Olli Rehn

At our next meeting in March, we will receive new data and an update of the ECB's forecasts, which will allow us to refine our assessment of the euro area's growth momentum and inflation dynamics.

We must all be prepared for the fact that geopolitical developments may still bring new surprises, we must be ready to react to them.

ECB member and Governor of Bank of Spain José Luis Escrivá

Inflation is at target, expectations are anchored.

ECB policymaker and Governor of Bank of Greece Yannis Stournaras

We are monitoring exchange rates.

We are in a stable equilibrium.

We are quite confident in Europe.

Euro increase hasn't been dramatic.

Market reaction

There seems to be no major impact of comments from several ECB members on the Euro (EUR). The EUR/USD pair trades broadly sideways around 1.1800 from the start of the European trading session, holding early gains.

ECB FAQs

What is the ECB and how does it influence the Euro?

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.

What is Quantitative Easing (QE) and how does it affect the Euro?

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.

What is Quantitative tightening (QT) and how does it affect the Euro?

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.