More rate hikes can be expected from the European Central Bank (ECB) in the future, ECB President Christine Lagarde said in a speech in the Estonian capital Tallinn this Friday.
“We have raised rates by 200 basis points and expect to raise rates further. Our work is far from complete,” Lagarde said of the ECB’s efforts to curb inflation in the eurozone.
Lagarde reiterated that the ECB will have to raise rates “to levels that allow it to meet its target” [do BCE] medium term of 2% inflation”, and that the “final target” is clear and has not yet been reached.
The ECB president stressed that inflation, which is reaching record levels in some eurozone countries, is a complex phenomenon, with new combinations of factors making price increases faster and more persistent.
“We have not seen such a rapid change in the inflationary environment since the beginning of monetary union,” he acknowledged.
“Eurozone inflation – which was negative in December 2020 – rose 11 percentage points during the pandemic to last month’s levels. Core inflation, excluding energy and food, rose 4.8 points,” Lagarde said.
Lagarde explained that there have been shutdowns, supply chain disruptions, cuts in energy production and the Russian invasion of Ukraine as demand jumped from one sector to another at great speed.
Regarding the war in Ukraine and its impact on the energy market, Lagarde predicted that gas prices will remain high for some time to come, as European countries will have to pay more to attract liquefied natural gas imports to replace Russian supplies.
The ECB president also hinted that the bank will reverse its policy of quantitative easing (by using bond purchases to increase the money supply).
The process of “quantitative tightening” is still experimental and being tested by central banks outside the eurozone, Lagarde said in comments after her official speech.
On economic policies and possible reforms in the broadest sense, Lagarde expressed the hope that the European Union (EU) will move towards a banking union, capital markets union and eventually some form of fiscal policy union.
“It won’t happen overnight,” he said, referring to joint community action on energy and the takeover of joint credits through the European Commission (EC) during the pandemic.
Lagarde also warned that with the aid programs ending due to the pandemic, it is also time to abandon expectations that there will be generous government spending to contain the impact of inflation and that, on the contrary, it is time for budget support to be “temporary, targeted and tailor-made”.
Source: DN
