European Central Bank Executive Board member Piero Cipollone said Wednesday that the ECB should be ready to swiftly ease its restrictive policy if incoming data confirm the scenario foreseen in the March projections. "Increased confidence in a timely return of inflation to our target should then allow forward-looking information to regain prominence in our reaction function," he added.
The official stressed that wage growth needs to moderate over the medium term for a sustained convergence of inflation to the ECB target. Meanwhile, he warned against excessive focus on short-term wage developments, noting that they "may not take into full consideration the recovery in wages that can - and needs to - take place for the euro area’s currently fragile recovery to gain a stronger footing."
Cipollone also called the policymakers to "remain proportionate going forward given an economy that has stagnated for 18 months, risks to the economic outlook that are skewed to the downside, and credit conditions that are in restrictive territory."
ECB's Executive Board member admitted that the ECB's policymakers are becoming more confident in the March projections, adding that "wage growth appears on track to gradually moderate in the medium term towards levels that are consistent with our inflation target and productivity growth, in line with the projections."
The official also noted that as inflation declines, the ECB's current policy stance becomes tighter relative to the inflation outlook, giving the central bank additional insurance against upside risks to inflation and also strengthening the case for adjusting its policy rates. "If we hold them for too long, we might put the recovery at risk and delay the associated cyclical rebound in productivity growth. This would be economically costly and induce risks for the sustained convergence of inflation to our target," he cautioned.