ECB's Kocher says must prevent too high inflation, becoming entrenched

Source Fxstreet

European Central Bank (ECB) Governing Council member Martin Kocher said on Thursday that the central bank must prevent too high inflation from becoming entrenched.

Key quotes

Must prevent too high inflation, becoming entrenched.

Eurozone economy remains fragile. 

Signs of somewhat more Eurozone momentum since summer. 

Market reaction

At the time of writing, the EUR/USD pair is unchanged on the day to trade at 1.1380.

Kocher keeps a steady hawkish tone as Eurozone momentum improves

Kocher’s 6.1/10 score on FXS Speechtracker matches the historic average, signaling a stable policy stance rather than a notable shift in tone. The emphasis on “must prevent too high inflation, becoming entrenched” leans hawkish, reinforcing the ECB’s commitment to keeping price pressures in check and limiting expectations for rapid policy easing.

References to a “fragile” Eurozone economy temper this hawkishness, suggesting caution about growth even as inflation risks remain central. However, the mention of “somewhat more Eurozone momentum since summer” supports a mildly constructive backdrop for the Euro, as it implies the economy may better withstand a prolonged period of restrictive policy.

ECB FAQs

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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