Francesca Landini and Valentina Za

MILAN, Reuters – MILAN – A top policymaker indicated that the European Central Bank could maintain its accommodative stance if governments in euro zones act to offset rising prices. This includes supporting households and avoiding wage hikes.

Ignazio Visco, a member of the ECB Governing Council said Wednesday to Bloomberg’s Italy Capital Markets Forum that Europe had not seen any “second round” price effects. These are linked with wage rises or unchained inflation expectations.

It is quite different to the United States. The disposable income of households has increased sharply, and “monetary policy cannot only be restrictive.”

One week ago, Federal Reserve increased interest rates by 1 point for the first-time since 2018.

Visco stated that there was no shortage of demand in Europe and that there has been a rise in supply. He said, “Inflation expectations have been well-anchored at approximately 2%.”

Visco refuted the notion that market rates are higher because of misalignment between central banks and investors.

According to him, higher borrowing costs are due to the uncertainty created by war in Ukraine. Investors trying gauge the indirect and direct impact of this conflict on companies, particularly banks, he said.

The ECB, for its part, had to refrain from “surprising markets too much” or “talking to much”, and he was already making an exception.

Visco demanded that budget and monetary strategies be coordinated as during the pandemic. This would allow the ECB only to gradually normalise the ultra-expansive monetary policy.

He said, “The only world in which we can move is one that has no negative real interest rates.”

There is no immediate need to take action.

Visco explained, “We don’t yet know the new norm…we have to be cautious, we have to stay open.”

He said, “If there’s second-round consequences then it’s up to the central bank to stop them.”