In a speech to the International Federation of Accountants’ Chief Executives Forum, European Central Bank Vice-President Luis de Guindos set out how exceptionally high macro-financial uncertainty is complicating both monetary policy and financial stability assessment. He noted that the ECB’s Governing Council lowered interest rates by 25 basis points in March, taking the deposit facility rate to 2.5%, while emphasising that the inflation outlook remains unusually uncertain and reinforces a data-dependent, meeting-by-meeting approach. De Guindos cited news-based indicators showing euro area economic policy uncertainty at more than three times its historical average and trade policy uncertainty at more than eight times, above pandemic-era levels. While disinflation was described as broadly on track with headline inflation easing from 2.3% in February to 2.2% in March and wage growth moderating, he pointed to trade tensions, exchange rate and import-cost channels, and defence and infrastructure spending as potential inflation drivers, alongside downside risks from weaker exports and growth. ECB staff growth projections were reported as revised down to 0.9% for 2025, 1.2% for 2026 and 1.3% for 2027. On financial stability, he said banks remain in good shape with solvency and liquidity indicators well above regulatory minimums, but highlighted vulnerabilities from elevated market valuations and concentrated risks, non-bank financial intermediaries’ exposures to risky assets that could amplify shocks via fund outflows or margin calls, rising concerns around sovereign indebtedness amid higher defence spending, and emerging credit risk in parts of the corporate sector, particularly export- and geopolitics-exposed firms. He said the ECB is broadening its toolkit, including scenario and sensitivity analysis and greater use of granular data, to better capture non-linearities and sources of risk amplification.
European Central Bank 2025-04-03
European Central Bank Vice-President de Guindos warns exceptional uncertainty is raising financial stability risks despite March rate cut to 2.5%
ECB Vice-President Luis de Guindos noted high macro-financial uncertainty complicates monetary policy and financial stability. The ECB cut interest rates by 25 basis points in March, with the deposit facility rate at 2.5%, maintaining a data-dependent approach due to uncertain inflation. He highlighted banks' strong solvency and liquidity but warned of vulnerabilities from market valuations, non-bank financial intermediaries, and rising sovereign indebtedness.