Lagarde: Increase pace if inflation is unfavorable

Created: 06/28/2022, 11:35 am

Christine Lagarde, President of the European Central Bank (ECB), keeps a keen eye on persistently high inflation.

© Daniel Roland/AFP Pool/dpa

After years of ultra-loose monetary policy, the course is set for an interest rate hike in the euro area.

However, persistently high inflation could force the European Central Bank to act more quickly.

That would not be without risk.

Sintra/Frankfurt - In view of persistently high inflation, Europe's monetary authorities could step up the pace of normalizing their monetary policy in the coming months.

"If the inflation outlook does not improve, we will have enough information to act more quickly," said European Central Bank (ECB) President Christine Lagarde on Tuesday at a central bank conference in Sintra, Portugal, which was also broadcast online became.

"Given the general outlook, the process of normalizing our monetary policy will continue in a resolute and sustained manner."

At its most recent regular meeting on June 9, the Governing Council of the ECB decided, after much hesitation, to exit the ultra-loose monetary policy that had been in place for years in view of the record high inflation: the multi-billion dollar bond purchases will end on July 1.

At the next regular meeting of the ECB Council on July 21, the central bank intends to raise key interest rates for the first time in eleven years, initially by 0.25 percentage points each time.

For the September meeting, the central bank held out the prospect of a further - possibly larger - rate hike.

Uniform monetary policy for 19 countries

The increase in interest rates could become a burden, especially for heavily indebted countries in Southern Europe.

The ECB has therefore already announced that it is working on a new anti-crisis instrument.

"The new instrument must be effective, but at the same time proportionate and provided with sufficient safeguards to allow member states to continue pursuing sound fiscal policies," said Lagarde.

The ECB President stressed that the central bank would not accept “unjustified fragmentation” in the euro area.

The normalization of monetary policy will naturally lead to a rise in government bond yields, Lagarde explained.

"However, in order to ensure the proper transmission of our monetary policy course throughout the euro area, we must ensure that this price adjustment is not exacerbated and distorted by destabilizing market dynamics." It is important to ensure a uniform monetary policy for the currency area of ​​​​19 countries, then be it possible to “raise interest rates as much as necessary”.

dpa