Pablo Hernández de Cos: The European Central Bank's monetary policy in response to the price stability challenge

Speech by Mr Pablo Hernández de Cos, Governor of the Bank of Spain, at the Círculo Financiero La Caixa, Barcelona, 22 May 2023.

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

Ladies and gentlemen,

It is my pleasure to be able to participate in this event and I would like to take the opportunity to share with you my thoughts on euro area monetary policy at what remains a complex juncture. The first part of my address will describe the decisions we took at the meeting of the Governing Council of the European Central Bank (ECB) held in early May. I will then break down the main determinants of our future decisions.

The May decisions

Amid persistently very high inflation, our May decisions were a further step in the monetary tightening process we launched at the end of 2021 to bring inflation down to our 2% medium-term target. Specifically, we decided to raise interest rates by 25 basis points (bp), in line with market expectations, increasing the deposit facility rate to 3.25%. This represents a cumulative increase of 375 bp since July 2022.

This decision was based on the overall assessment of the three factors currently informing our interest rate policy: the inflation outlook in light of incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.

With regard to the inflation outlook, our assessment largely rests on the Eurosystem staff quarterly projections, which paint a coherent picture of different macroeconomic developments – including the risk factors – and their likely future path.