Lagarde: ECB to go ‘as far as necessary’ to fight inflation

LAST UPDATE 12:14

The ominous prediction that inflation, which is at an undesirably high level, will remain there for some time, was made by the President of the European Central Bank, Christine Lagarde, from Sintra, Portugal, for the ECB Forum “Challenges for monetary policy in a rapidly changing world “.

According to Lagarde, this is a major challenge for the Bank’s monetary policy.

He added that he would go “as far as necessary” to fight “excessively high” inflation, which is expected to remain high “for some time to come” in the eurozone.

“In response to the changing inflation outlook, we have consistently followed the course of policy normalization since December last year, successively adjusting our policy stance,” he said.

He added that the purchases of net assets under the various programs will end this week. “In July we plan to raise our interest rates for the first time in 11 years. And we have also given some indications for the September meeting and the course of interest rates that we plan to follow next.”

The President of the ECB clarified that the Bank will continue on this path of normalization – and will go as far as necessary to ensure that inflation returns to the 2% target.

According to her, the initial source of inflation is an unusual series of external shocks. Holidays in the global supply chain, coupled with growing global demand, have pushed up prices for industrial goods.

The mismatch between supply and demand on world energy markets has led to rising energy prices for the eurozone, and the Russia-Ukraine war has strengthened both of these factors while also raising food prices worldwide.

“Given its energy dependence, the eurozone is experiencing these crises intensely,” he said.

The second factor driving higher inflation is the recovery in domestic demand as the economy reopens after the pandemic.

Expenditures shift from goods to services as restrictions are lifted, while demand for tourism and leisure is proving to be extremely strong.

This recovery in spending has pushed services inflation to 3.5% in May, the highest level since the mid-1990s, with higher price increases coming from areas that include direct consumer contact.

The ECB’s upcoming bond-buying program will reduce rising borrowing costs for vulnerable eurozone countries while keeping pressure on governments to improve their budgets, Lagarde said.

According to Reuters, with the ECB approaching the first rate hike in a decade, bond yields for Italy and other heavily indebted countries have risen, and the spread they are paying against Germany has widened.

This has prompted the ECB to accelerate work on a new bond-buying program, which has not yet been revealed.

Her comments suggested the new plan was likely to be accompanied by some commitments for beneficiary countries, sources told Reuters this month.

“The new tool should be effective, but at the same time it will be proportionate and it will contain sufficient safeguards to maintain the Member States’ push for a sound fiscal policy,” said Lagarde of Portugal.

Lagarde offered assurances that the new anti-crisis tool would not stand in the way of tackling the faster rise in consumer prices since the introduction of the euro.

“There are clearly conditions in which a step-by-step approach would not be appropriate. the facilities faster “.

Rejecting fears that some of the moves would amount to direct government funding, Lagarde stressed that the new instrument should include safeguards to maintain sound fiscal policy among member states.

He added that this would allow interest rates to rise “as needed”, complementing efforts to stabilize inflation at the 2% target.

“We will ensure that the smooth transmission of our policy throughout the euro area is maintained. We will address any obstacles that may pose a threat to our mandate for price stability,” Lagarde said.