FRANKFURT, Germany – European Central Bank (ECB) Governing Council member and Governor of the Bank of Estonia, Madis Müller, recently emphasized at a financial stability conference in Frankfurt that central banks must exercise caution when formulating monetary policy, avoiding hasty adjustments to interest rates due to market pressures. He pointed out that the current economic recovery in the Eurozone remains fragile, and any premature policy shift could undermine the hard-won stability.
Müller noted that the transmission of monetary policy has a significant lag, typically taking 12 to 18 months to fully impact economic activity. Therefore, policymakers should not make judgments based solely on short-term data but should comprehensively assess long-term trends, structural factors, and regional differences. Currently, although overall inflation has clearly retreated from historical highs, core inflation—especially service price inflation excluding energy and food—remains high. Sustained wage growth in major economies such as Germany and France continues to drive up service costs, constituting a significant source of inflation resilience.
Meanwhile, the Eurozone's economic fundamentals present a divergent picture. Manufacturing activity in most member states remains in contraction, particularly Germany's export-dependent industrial sector, which faces weak external demand. Consumer confidence has rebounded somewhat, but the pace of improvement is slow. Credit conditions are still tightening, and the cumulative effect of previous interest rate hikes is gradually becoming apparent.
Müller specifically cautioned against complacency regarding the following risks: first, tight labor markets may continue to drive up wage pressures; second, geopolitical uncertainties pose a potential shock to energy supplies; and third, the fragile fiscal situation of some member states may limit policy space. Historical experience shows that the ECB's premature interest rate hike in 2011, which exacerbated the debt crisis, still serves as a realistic warning.
As inflation gradually approaches the 2% target, a patient and data-driven decision-making framework is more important than pursuing short-term market expectations. Müller emphasized that the central bank's primary responsibility is to ensure price stability, not to cater to short-term fluctuations. Only by maintaining focus can sustainable economic recovery be achieved.