The Limited Times

Now you can see non-English news...

Lagarde stands firm and rules out raising rates despite rising inflation

2022-01-21T04:55:37.839Z


Hernández de Cos asks for an income pact to avoid a stronger price escalation Neither the high rate of inflation in the euro zone, 5%, nor the pressure of the markets move the European Central Bank (ECB) for now from the roadmap that was marked last December. The president of the institution, Christine Lagarde, remained firm and outside the acceleration that analysts expect the Federal Reserve to give with at least three interest rate hikes in 2022. At the moment, the ECB d


Neither the high rate of inflation in the euro zone, 5%, nor the pressure of the markets move the European Central Bank (ECB) for now from the roadmap that was marked last December.

The president of the institution, Christine Lagarde, remained firm and outside the acceleration that analysts expect the Federal Reserve to give with at least three interest rate hikes in 2022. At the moment, the ECB does not foresee any.

In an interview on

France Inter

, Lagarde said she has "every reason not to act as quickly as one can imagine the Fed would."

The Eurostat statistical office confirmed this Thursday that the euro zone closed December with an inflation of 5%, with the Baltic countries, Spain, Belgium and the Netherlands in the lead, with rates well above 6%. However, Lagarde maintained that the rise in prices will ease throughout the year and justified her action on the need to prevent the recovery from going off the rails. “We cannot act immediately. If I raise interest rates, that will have an effect in six to nine months. That's the time it takes for [the rise] to go down the financing chain. But we are slowing growth,” he explained.

The minutes of the last meeting of the Governing Council of the ECB, however, reveal that within the body of the institution there are still voices that disagree with Lagarde's firmness. Although those documents, published this Thursday, indicate that the council members considered "broadly" that "substantial support from monetary policy" is still required for inflation to stabilize at the ECB's medium-term target of 2 %. However, other members of the Council expressed their fears that this price increase will remain high "longer than expected." And they recalled that, the more the months go by, the more this trend could consolidate in market expectations, the more danger there was that it would spread to wages and, ultimately, fuel real inflation to a greater extent.

Reservations about the new ECB package

The package that the ECB finally put forward also generated some debate within the council.

This consisted above all of leaving interest rates intact, ending the pandemic-related debt purchase program (PEPP) in March and increasing the amount of the traditional plan (APP) and extending the reinvestments of the PEPP until 2024, making it more flexible to be able to acquire Greek debt.

According to the minutes, "a large majority of members" were in favor of that package proposed by the chief economist of the ECB, Philip Lane.

But others "kept reservations" for his generosity.

The governor of the Bank of Spain, Pablo Hernández de Cos, shared a diagnosis with Lagarde

in an interview with

TVE

. Hernández de Cos said that the CPI will remain in Spain at "relatively high" rates during the first half of the year and that, subsequently, it will be reduced, so that it could end up "even below 2% at the end of the year". In his opinion, inflation has a "transitional component" that will be "diluted" in the course of 2022.

The governor, who has recalled that the current dynamics does not invite one to think of a rate hike in the euro zone during this year, has warned about the danger that inflation ends up contaminating other spaces and creating a "vicious spiral" of increase in margins, prices and wages that can "feed back".

Despite the fact that he said that wages are moderating, Hernández de Cos called for an income pact that avoids these tensions.

In other words, there must be an agreement to share the losses caused by inflation.

Source: elparis

All business articles on 2022-01-21

You may like

Trends 24h

Latest

© Communities 2019 - Privacy

The information on this site is from external sources that are not under our control.
The inclusion of any links does not necessarily imply a recommendation or endorse the views expressed within them.