Pablo Hernández de Cos: Latest monetary policy developments in the euro area

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the Brookings Institution - the Hutchins Center on Fiscal and Monetary Policy, Washington DC, 10 April 2023. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Good morning, it is a pleasure to visit the Hutchins Center on Fiscal and Monetary Policy and share with you my reflections on euro area monetary policy at a still very challenging time for central banks globally.

I will start by briefly describing the decisions that we adopted at our European Central Bank (ECB) Governing Council meeting in March. Then, I will lay out a number of factors that will determine our future decisions and will require close monitoring going forward.

Our March meeting took place in the context of the financial tensions related to the banking sector in the US and in Switzerland. These tensions increased investor risk aversion and financial market volatility and led to a global drop in bank share prices. While the European banking sector is resilient, with strong capital and liquidity positions, the main message from our meeting was that we are closely monitoring these financial tensions and we stand ready to respond as and when necessary to maintain price and financial stability in the euro area. As we emphasised in our monetary strategy review approved in July 2021, financial stability should be seen as a prerequisite for price stability.

In addition, we took a further step in the process of tightening our monetary policy stance in response to the outlook for euro area inflation, which is projected to remain too high for too long. In line with our intentions already anticipated at our February meeting, we increased interest rates by 50 basis points (bp), bringing the deposit facility rate (DFR) to 3%. This represents a cumulative increase of 350 bp since July last year.