European Central Bank vice-president says current interest rates are appropriate as inflation stands at 1.7% and policy remains data-dependent

The European Central Bank published an interview with Vice-President Luis de Guindos in which he argued that the current level of interest rates remains appropriate, with euro area growth proving more resilient than projected and inflation converging toward the ECB’s target. He reiterated that the monetary policy stance has not changed since the December meeting, that the ECB gives no forward guidance, and that decisions will continue to be taken meeting by meeting on the basis of incoming data. Headline inflation was cited at 1.7%, with early-2026 undershooting described as consistent with prior projections and core inflation declining toward target; energy inflation was lower than expected but volatile, while services inflation was described as moving in the right direction. Key risks highlighted included geopolitics and the possibility of additional trade diversion toward Europe, with low-priced Chinese exports potentially weighing on both inflation and growth; tariffs were characterised as inflationary in the very short term but potentially deflationary in the medium term via weaker demand. De Guindos also pointed to marginal tightening in corporate credit standards, concentrated in sectors more exposed to trade tensions, and said the ECB monitors the exchange rate closely without targeting it, noting EUR/USD had returned to the 1.16-1.18 range consistent with projection assumptions. On fiscal policy, he said higher defence spending is a priority but stressed the need for governments to continue signalling fiscal consolidation to support sovereign bond market stability, and he welcomed Kevin Warsh’s appointment as Chair of the Federal Reserve while praising Governor Boris Vujcic as his successor and noting the lack of female candidates for the role.