Luis de Guindos, vice president of the European Central Bank, did not specify how high the next rate move might be in the upcoming decision. He noted that officials are aiming to curb the inflationary pressures that the institution faces. During a speech at a course organized by the Association of Economic Information Journalists and Menéndez Pelayo University, Guindos responded to a question with caution: his reply was simple and markedly prudent, avoiding any definite forecast about the level of policy accommodation or restraint.”
In recent months, several members of the central bank’s governing council have suggested that rates could move toward a level considered neutral or natural, where policy neither expands nor tightens the economy. The key question remains where that balance lies. On behalf of the Spanish central bank governor, Pablo Hernandez de Cos, estimates have floated around 1 percent or just above, while other officials place it nearer to 2 percent. “If you ask a hundred economists, you’ll get a hundred different answers,” Guindos quipped with a hint of irony.
This ambiguity has kept the market attentive to the possibility that the ECB could raise policy rates to about 1.5 percent, though Guindos avoided firm commitments. Inflation data continues to surprise to the downside or upside at times, prompting officials to withhold from binding their own hands. The U.S. Federal Reserve has already signaled a higher path for the cost of money, and recent assessments warn that the probability of a recession in the United States in the coming quarters remains elevated.
anti-fragmentation
The former economy minister is also a member of the ECB and supports a tool designed to prevent unwanted financial fragmentation. This refers to a rise in risk premia in countries with more fragile public finances, such as Spain and Italy, beyond what sustainability allows. Guindos indicated that the new mechanism would be of a distinctly different nature from the 2012 Unconventional Monetary Transactions program, because the current situation is not the same as then.
While he did not provide specifics, Guindos implied that there would be no new mechanism targeting individual countries with strict conditions akin to the old OMT approach. During the debt crisis of the previous decade, the ECB designed an instrument that could be used to purchase a country’s securities directly and broadly, but only under significant policy conditions and without a formal government request.
Guindos stressed that the ECB would activate the new tool based on a mix of objective indicators—such as risk premia, financing costs, market liquidity, and core economic fundamentals—along with its own economic judgment. He cautioned that economics is not an exact science, and policy choices reflect a balance of multiple signals rather than a single formula.