ECB: “Inflation too high, restrictive rates until necessary”

In the new economic bulletin the European Central Bank reiterated that “inflation prospects continue to be too high for too long” and that “the Governing Council will continue to follow a data-dependent approach to determine an appropriate level and duration of the restriction”

For as long as necessary, “the reference rates” will be set “at sufficiently restrictive levels to achieve a timely return of inflation to the 2% objective in the medium term and will be kept at these levels for as long as necessary”. This was announced by the European Central Bank in the new economic bulletin, specifying that “pressures on prices remain intense” and “there are still significant upside risks to the inflation outlook”. “Overall inflation – reports the bank – has decreased in recent months, although the underlying pressures on prices remain intense”, and at the same time the increases “are being vigorously transmitted” to the financing conditions “while the delay and the intensity of the transmission to the real economy remain uncertain”. The ECB then reiterated that “inflation prospects continue to be too high for too long” and that “the governing council will continue to follow a data-dependent approach to determine an adequate level and duration of the restriction”.

The prospects

For the ECB, in the short term, inflationary pressures could generate stronger-than-expected increases in retail prices, while the war in Ukraine could push energy and food prices up again. Inflation expectations, which persist above the ECB’s target, could also push prices higher over the medium term, as could larger increases in wages or profit margins. Among the downside risks for the ECB are any new tensions in the financial markets, which could cause inflation to fall faster than projected.

“Governments withdraw support measures as energy crisis eases”

For the ECB, as the energy crisis eases, “governments should withdraw the related support measures promptly and in an agreed manner” in order to “avoid pushing inflationary pressures upwards in the medium term, making a more resolute”. The bulletin also underlines that “budgetary policies should be oriented towards making the euro area economy more productive and gradually reducing the high public debt”. Furthermore, says the ECB, “policies aimed at improving the euro area’s supply capacity, especially in the energy sector, can help reduce pressure on prices in the medium term”.


The GDP of the euro area in the first quarter of the year rose by 0.1%, after stagnating at the end of 2022, and “the data that have been made available so far indicate for the second quarter of 2023 the continuation of positive growth, albeit moderate”, writes the ECB in the bulletin. Economists also report that business investment is expected to pick up again in early 2023, following a contraction in the fourth quarter of 2022.

The loans

As for loans, the ECB writes that “banks reported a sharp drop in demand from businesses and households in the first quarter of 2023. The drop in demand from businesses was the sharpest since the global financial crisis, while the contraction in household demand was the highest since the start of the survey in 2003”. The decline in loans “was higher than the expectations expressed by intermediaries in the previous quarter”, and banks have indicated that the main reason is the level of interest rates.