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Q&A on Twitter

Interview on Twitter with Frank Elderson, Member of the Executive Board of the ECB, conducted and published on 6 May 2022

6 May 2022

Hello, this is , Executive Board member at the ECB. I’m looking forward to answering your questions for the next 45 minutes or so. Join the conversation!

Mr Elderson with what is taking place in Eastern Europe and high inflation what is the outlook for the Paris agreement and sustainability in the euro zone will you be able to reach stated goals and targets?

: Russia’s horrific war in Ukraine has shown how vulnerable Europe is as a result of our dependency on fossil fuels. We all need to do our part to speed up the green transition to reduce these dependencies and protect people from energy price spikes

Why is the board's opinion on rates and price stability so far disconnected from the popular opinion? Poll after poll show people disapprove of ECB's actions and think inflation is unacceptable, but not a single board member is sharing those views to represent the people?

: We hear people’s concerns and take them seriously. Inflation is very high at the moment, which is particularly hard on people with low incomes. We will decide on the next step for the normalisation of our policies in June

what does the ECB’s executive board think about the causes behind the spike in inflation? Is it possible that inflation is driven by supply bottlenecks in several sectors (commodities, logistics etc) in which the ECB has not control even by tightening monetary conditions?

: Surging energy prices are the main reason for current high inflation, but supply bottlenecks are also playing a role. While higher interest rates would not solve this, we have to ensure that high inflation does not get entrenched in people’s expectations

My colleague Philip R. Lane talked about these aspects and the euro area outlook in more detail yesterday. You can find his speech here https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220505~dcbd30ecb6.en.html

I’d like to whether they have any clue about the actual change of prices of residential properties (land, houses, apartments) in core European countries over the past several years? What’s the data you’re looking at in that respect?

: Housing price statistics for the euro area are prepared by Eurostat, and that’s the data we look at. There is quite a bit of variation in house price growth between countries. For a recent release, see here https://ec.europa.eu/eurostat/web/products-eurostat-news/-/ddn-20220408-1

Some of your colleagues have indicated a possible rate hike in July, and one other said June, which month do you expect the ECB to first hike its deposit rate?

: The exact timing of rate hikes will depend on incoming data. We will discuss this in detail at our next Governing Council meeting on 9 June in Amsterdam

Would you consider window guidance towards renewable and nuclear energy? Will you consider increasing rates for housing credits?

: As a central bank, we set the key interest rates for the euro area. These influence the cost of borrowing and with that, rates for housing loans. The timing for rate hikes depends on incoming data, and we will discuss this in detail in our June meeting

Did life get more expensive since the introduction of €?

: Since the euro was introduced, average inflation has been around 1.7% – much lower than in the decades before the introduction of our single currency

Now there is a recession simultaneously to still rising inflation and a monetary policy still far behind the curve. Which reforms of the ECB are necessary in order to act too late and to avoid monetary policy walking into the inflation trap?

: Weaker incoming data don’t suggest so far that we’re entering a recession and we expect inflation to decline – all depending on how the war evolves and the impact of sanctions. We will decide on the next step for the normalisation of our policies in June

Why do we still believe in year 2022 that a central entity can manage such a complex task like price stability, which comprises billions of vectors & variables, with more or less 3 levers? Isn't that like trying to keep the weather stable? And why are central banks so bad at it?

: Over the last few years, we were faced with severe shocks like the pandemic and now the war. By adjusting borrowing costs we can steer the economy in a way that supports a return to our 2% target over time. This is our unwavering commitment

Hello, with such weak activity numbers coming out every day confirming rising odds of a recession in Europe, why would is the discussing interest rate hikes?

: It is true that the war is weighing significantly on activity, but it also pushes up inflation, mainly through higher energy prices. Our mandate is price stability, so we will make sure that we bring inflation to our target of 2% over the medium term

Did you follow the Eintracht game last night?

: All I will say is that today I am neither a hawk, nor a dove. I am an eagle. Congratulations to !

The ECB is considering hiking rates in the near future. Given how far it is behind the curve would 50 bp increment be more appropriate?

: Our approach to policy normalisation is completely data-dependent. We will discuss this in detail at our June meeting

what's the ECBs position on blockchain and will there be an EU regulatory when it comes to crypto currencies?

: We need a globally coordinated approach to regulating crypto-assets as they are a global phenomenon. Regulation needs to balance risks and benefits, and address issues like cross-border illicit activities and the environmental footprint of crypto-assets

My colleague Fabio Panetta recently spoke about this in detail. Read the full speech here https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp220425~6436006db0.en.html?utm_source=ecb_Twitter&utm_campaign=220425_speech_FP

My serious questions: Do you think the ECB needs a more transparent mechanism and communication for inflation projections. While many economists warned of accelerating inflation the ECB underestimated it by far for no rational reason.

: The ECB’s projections have underestimated inflation. This reflected factors that many other expert forecasters did not foresee either, like the unexpected surge in energy prices and more persistent supply bottlenecks that have been aggravated by the war

You can read more about this topic in our recent #EconomicBulletin https://www.ecb.europa.eu/pub/economic-bulletin/focus/2022/html/ecb.ebbox202203_05~6d1fb8f5b0.en.html

What is the reason to inflate by 100% your balance sheet since March 2020? Where did the money went?

: Our balance sheet grew in response to the pandemic emergency. Our policies have kept borrowing costs in check. Together with massive fiscal support, we have helped to protect people, firms and banks from the economic effects of the unprecedented shock

why is your rhetoric different for when inflation was below the 2% and when it is above. Is there a bias within the ECB for inflation over 2% than under 2%

: I beg to differ. We are fully symmetric in our commitment to achieving our price stability mandate. We react just as decisively whether inflation is too low or too high

Is Europe and USA, in your opinion, in a similar position as Japan was 30 years ago?

: No, we don’t see Japanification in the euro area, meaning structurally low growth and low inflation. Our population structure is different, our banks are in better shape, and there is no comparable real estate bubble

What is the advantage of CBDS's for the society? It's like the biggest monetary change since banks exist and the media and government media is not even talking about it. Does the EU want to be the new China? No one is talking about the influence of the WEF in the world either...

: A digital euro would ensure that people continue to have access to the safest form of money: central bank money. At the moment, we are finding out more about people’s needs and would finetune the design features of a digital euro accordingly

Will you even consider investments in the CPI? Investments (house prices for example) are in the end just people and raw materials. It might have a delay until it reaches consumer products but eventually it will! Is the division in society today a problem considered by ECB?

: Owner-occupied housing is both a consumption good and a form of wealth. The costs of housing, whether owned or rented, make up a large part of people’s expenses. This is why we recommend including it in inflation measurement https://www.ecb.europa.eu/pub/economic-bulletin/articles/2022/html/ecb.ebart202201_01~f643aad55c.en.html

Please, an straightforward answer as possible: The m3/GDP ratio has gone up from mid 70% at the beginning of this century to currently way over 100% What would be an about right ratio or range? What has that range historically been?

: The money/GDP ratio has grown in all major advanced economies, ranging from about 90% in the US to above 200% in Japan. There is no right/wrong ratio; it is a reflection of how much of their wealth people and firms wish to hold in bank deposits

why you still keep buying bonds when inflation is above your target? Why are you still printing and making our money lose value?

: We are planning to end our net asset purchases soon, in the third quarter of this year. They have worked well and helped our inflation outlook to stabilise around 2% in the medium term

If Mr. Michael Spence is right saying that most probably globally we are at Lewis Turning Point(growth model has changed, higher inflation will be common phenomenon, world has become multipolar),how will ECB adjust its modelling, mandated goals, role, definition of "price stability"?

: Our commitment to price stability is unwavering amid constant changes in the economy due to globalisation, digitalisation and climate change. We covered these changes in our strategy review and are constantly updating and improving our models

There´s a increasing of members asking to put at end to the QE this summer and starting lifting rates in the 3Q of 2022, when you think it is appropriate to begin normalizing monetary policy?

: We have already started normalisation. We ended the pandemic purchase programme in March and have started reducing our net asset purchases. Ending net purchases soon will enable us to consider rate hikes this summer

Does the assesses that banks can easily absorb the decrease in the negative interest gain they earn on their previously awarded TLTRO III loans, after the additional special interest rate period, thus after June 23?

: The special interest rate for banks was introduced to support their lending to the economy during the pandemic. We’re confident that this policy support will no longer be needed. We assess that banks can generate profits without taking too many risks

if introduces an digital Euro, how will you ensure that it doesn't destabilise the heavy reliance on deposit funding by many euro area banks? Thanks

: No final decisions on this have been made yet. But we will of course make sure that any form of a digital euro would not hamper bank intermediation, because banks play a crucial role in our economy. See more here https://www.ecb.europa.eu/paym/digital_euro/html/index.en.html

does he ECB view the current pickup in sovereign bond spreads as a signal to risks to monetary policy transmission are on the rise in the current market environment?

: We must ensure that monetary policy is transmitted evenly to all parts of the euro area. We are ready to use a wide range of instruments to address fragmentation, including the possible flexibility under the PEPP’s reinvestments

So the War in Ukraine is running ECB policy now?

: No, but it has substantial impact on the euro area economy and on inflation. We have to take this into account when setting policy

What, if anything, needs to be done to tackle the environmental impact of bitcoin?

: Crypto-assets such as have an enormous ecological footprint. Their estimated energy consumption is comparable to that of some countries. Authorities across the world need to see how this affects their sustainable finance roadmaps and take action

Good afternoon, what's the role of the ECB when addressing economic challenges that are only in part within it's perimeter of action? Such as supply-driven inflation driven by energy prices.

: While we cannot lower oil prices, we will make sure that high inflation does not become entrenched in expectations and leads to second-round effects

Time to wrap up. Thanks a lot for your questions – I really enjoyed the chat and look forward to doing this again soon. Take care!

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