European Central Bank (ECB) Governing Council member Ewald Nowotny spoke in the European Money and Finance Forum (SUERF) today. .
Regarding monetary policy, it reiterated that “it is time for a gradual normalization” as inflation pressure will eventually materialize. But he also emphasized that “this normalization requires a delicate balancing of measures as well as careful sequencing in time.” He noted that ECB is now at an “important turning point”. While the Eurozone has very strong economic expansion, it’s an unequal one.
He stressed that the ECB framework is well equipped to cope with the evolving inflation debate. But still, exit is complex due to the large amount of stimulus in place. Nowotny also repeated all other central bankers have said over time. That is, tightening too soon would stifle recovery. Falling behind the curve would risk creating bubble in assets.
On the topic of trade war, Nowotny warned of the “negative effects for all involved”. And, “the direct effects might be on the exchange rate side but this is difficult to see or to forecast because today we have so many linkages, we have long production chains… It might have negative effects on financial stability, but effects on monetary policy are not very clear.”
