ECB President Christine Lagarde said today that the nature of inflation in the eurozone is changing and that it is unlikely that the central bank will be able to declare that maximum policy rates have been reached in the foreseeable future.
In Sintra, at the opening of the Central Bank Forum (ECB), Christine Lagarde reaffirmed that inflation in the Eurozone is too high and will remain so for too long, with the central bank’s commitment to meet its 2% inflation target. retrieve remains.
“We still have not seen the full impact of the cumulative rate hikes decided since last July – which amount to 400 basis points. However, our work is not done yet,” he said.
The President of the ECB reaffirmed what had been signaled at the last meeting of the Board of Governors this month: “Unless there is a substantial change in the inflation outlook”, the central bank will continue with “the rate hikes in July”.
Christine Lagarde explained that there are two sources of uncertainty that affect the “level” and “duration” of policy rates.
On the one hand, uncertainty about the persistence of inflation means that the level at which rates reach a maximum depends on the situation.
“It’s going to depend on how the economy and some of the forces I’ve described evolve over time. Plus, it’s going to need constant reassessment over time,” he said.
He therefore considers it “unlikely that the central bank will be able to confidently declare that the maximum rates have been reached in the foreseeable future”.
“It is for this reason that our policy must be decided on a meeting-by-meeting basis and remain dependent on data,” he said.
On the other hand, there is uncertainty about the strength of monetary policy transmission.
“How strong the transmission turns out to be in practice will determine the effect of a given interest rate hike on inflation and this will be reflected in the expected trajectory of monetary policy,” he stressed.
Lagarde recalls that part of this uncertainty lies in the fact that the eurozone has not experienced a sustained phase of interest rate hikes since the mid-2000s and that interest rates have risen at an unprecedented rate.
“We need rates that reach ‘sufficiently restrictive’ levels to establish the restrictiveness of our monetary policy,” he stressed, adding that it is necessary to communicate clearly that they will remain at these levels “as long as necessary”.
“This will ensure that rate hikes do not raise expectations of a too-rapid monetary policy reversal and allow for the full effect of our previous measures,” he said.
On the first day of debate at the annual forum hosted by the central bank, which brings together central bankers, academics, financial specialists and policymakers, Lagarde assured that the purpose of today’s speech “is not to announce future decisions, but to address the issues which monetary policy will face in the near future”.
“We have made significant progress, but in the face of a more stubborn inflationary process, we cannot hesitate, even declare victory,” he stressed.
Source: DN
