00:00The decision was unanimous. We have followed the data that were coming in over the last three
00:07months. So since the since the war in the Middle East started we were quite curious how this will
00:15affect the real economy and in the last two meetings we had in March and April of course
00:22there was not enough evidence how this will affect the real economy in Europe, how this will affect
00:30economic growth and inflation, but now hard data is there. It's pretty obvious that inflation will
00:36be higher, economic growth will be lower and this is this is the reason why we increase the interest
00:43rates today. And I think that the market is trying to grapple with what kind of hike is this? You
00:48know
00:48is this a one and done? Is this the beginning of the cycle? Is this just basically trying to create
00:52maximum flexibility for the ECB? How should the market be thinking about this? It's it's I would
00:57say it's a it's a hike that enables us that we that we do the thinking of of the broader
01:06environment in
01:07the next in the next meetings. But it's just enough for now to follow our main path. So this is
01:15the
01:15interest rate being as high as possible or as high as needed for inflation to be on track. We have
01:24we have
01:26seen today the staff projections at the ECB for the next three years and all the underlying all the underlying
01:36uh not only projections but all all the all the data around surrounding it uh and we have seen uh
01:45that
01:46according to all the scenarios that we had on the table this one uh hike for 25 basic points uh
01:53is
01:54robust across all these scenarios. And so you guys were very sort of deliberate and telegraphing this to
01:58the market it was very well advertised by all the uh ECB speakers ahead of it um now the market
02:04is pricing
02:04one maybe two more uh hikes this year. Is that a sort of range that you're comfortable with? Yeah we
02:10we won't uh give any forward guidance I would say uh so we will keep our uh our communication and
02:17our
02:17thinking uh as we had uh before so we will be data dependent uh and we will see what's what's
02:24going on
02:25uh in the uh in the next couple of weeks months. And so while there was unanimity at the ECB
02:30there were
02:30a lot of economists some of whom we spoke to here at Bloomberg that's saying that basically you know
02:35the ECB is kind of fearing the 2022 scenario moving too slowly but there's actually a greater risk
02:40potentially of moving too early. That the impact on growth could be a very substantial the 20 sort of
02:4511 sort of scenario. How much of that how much of a concern is that to you? We spoke to
02:49one analyst
02:50this week for example who said that if you hike this week you're going to be cutting again in the
02:53fourth quarter.
02:55Well uh as I said I cannot comment on what we will do uh in the future but uh we
03:02had uh really a robust
03:04set of data on the table our projections and all the scenarios and the most of scenarios show that uh
03:12economic growth this year and for next two years will be lower than initially anticipated in December
03:20and uh that inflation will be higher. So uh but for now we do not uh let's say predict any
03:27uh rate
03:29rate paths uh in in the next meetings. And how concerned are you about sort of government action
03:34potentially to try to offset some of the impact of the energy shock that might be sort of inflationary?
03:39We've also seen the EU sort of loosen giving a little bit more budget leeway debt levels are already
03:44very high in Europe. You know how concerned are you about that? Yeah we are concerned about uh general
03:49picture in Europe uh and also for the for the fiscal policy uh we know that uh that some countries
03:57are
03:57really on the limits uh and uh we would follow the the main recommendation that fiscal policy needs to be
04:06robust it needs to be focused uh on the things uh that's important and uh all the necessary measures
04:13should be temporary. I'd like to also get your thinking and the governing council's thinking more
04:17broadly about kind of the tail how long the tail is on this war in Iran and the effect it's
04:22going to
04:22be. Let's imagine a scenario in which the war ends tomorrow there's a ceasefire the Strait of Hormuz
04:27reopens oil comes down to sixty dollars a barrel. What does that mean for inflation? You know is this
04:32something that is going to actually stay with us a little longer even if the war ends? Yeah as I
04:36said
04:37uh one of the scenarios that you alluded to uh was also on our table so this is something between
04:45a
04:46mild scenario and basic baseline scenario that we had so uh this would mean that uh all prices will go
04:53down pretty fast but still we have to think about that not only the price matters also the quantity so
05:01uh even if Hormuz is open tomorrow uh the all the all the oil will not will not come to
05:07Europe or to
05:08China or wherever so it will be uh some kind of effect for longer but even in uh in the
05:14baseline scenario
05:15the inflation this year will be higher than initially anticipated and in fact even in the mild scenario.
05:22And also think about some of these sort of economic dynamics we were looking at the PMI data that
05:27was coming out and actually for once manufacturing seems to be holding up better than services how
05:31concerned are you about that weakness that we're seeing there in services or does that actually
05:34help you uh with the kind of inflation fight because it's sort of bringing down sort of demand
05:38for some of the services? I would say uh quite the opposite because what we see from the data is
05:45that
05:47services inflation is still uh stubborn at three three point five percent so this is one of the this is
05:55one of the
05:56uh uh inflation uh inflation uh inflation part that that uh it's really hard to uh to uh to fight
06:08so uh what we have seen is that on the data uh is that services inflation is one of the
06:14most important uh
06:16structural part of our of our inflation and so obviously price stability is your main concern but
06:23important to price stability is market stability and there are a lot of ingredients right now in the
06:27market that i think might make some people uncomfortable obviously there are the wars the
06:31impact on inflation and energy access there is you know stretched fiscal budgets high debt for
06:36european nations may not be able to react if something happens and meanwhile the market seems
06:41unshockable you know ever since liberation day the market keeps climbing climbing climbing despite some
06:46sort of erratic things we've been seeing in politics and we're minting kind of trillion dollar
06:50companies it seems now every kind of every kind of month that seems to be driven a bit by fomo
06:55for
06:55investors those seem like the ingredients for something that could go quite wrong quite quickly
06:59in terms of a sharp repricing how much does that concern you how much is that a conversation at the
07:04ecb
07:04yeah this is uh one of the conversations that that we do have uh so alongside with monetary policy
07:11analysis we also have the analysis of financial markets financial sector uh banking sector and so on and so on
07:19and we also assess how our uh decision would affect other parts of of the economy especially financial
07:27markets so we do see uh that markets are quite robust uh especially in europe but not only in europe
07:36also
07:37elsewhere which is in a way okay because with this uh robust financial market we can expect a firm uh
07:45transmission of monetary policy but of course we have to be vigilant if something goes wrong or if
07:52something moves too fast
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