ECB President Christine Lagarde said on Tuesday that inflation patterns in the euro area are changing and it is unlikely that the central bank will be able to announce maximum base rates in the near future.
Lagarde reaffirmed what was said at the last meeting of the Board of Governors this month: “Except for a significant change in inflation outlook,” the central bank will continue to “raise rates in July.”
In Sintra, at the opening of the Forum of Central Banks (ECB), Christine Lagarde recalled that inflation in the eurozone is too high and will remain so for too long, with the central bank committed to achieving the inflation target of 2% remains.
“We still haven’t seen the full effect of the cumulative 400 basis point interest rate hike enacted since last July. However, our work is not yet complete,” he said.
Christine Lagarde explained that there are two sources of uncertainty that affect the “level” and “duration” of key rates.
On the one hand, uncertainty about the sustainability of inflation means that the level at which rates will peak will depend on the situation.
“It will depend on how the economy develops over time and some of the forces that I have described.
Thus, he considers “it is unlikely that in the near future the central bank will be able to declare with all certainty that maximum rates have been reached.”
“It is for this reason that our policy must be decided meeting by meeting and remain data-driven,” he said.
On the other hand, there is uncertainty about the strength of monetary policy transmission.
“How strong the transmission will be in practice will determine the impact of this rate hike on inflation, and this will be reflected in the expected trajectory of monetary policy,” he stressed.
Part of that uncertainty, Lagarde recalls, is that the eurozone has not experienced a steady phase of rate hikes since the mid-2000s, and rates have never risen so quickly.
“We need rates to reach ‘sufficiently restrictive’ levels to put our monetary policy on limits,” he stressed, adding that it must be made clear that they will remain “at these levels for as long as necessary.”
“This ensures that rate hikes do not raise expectations of a too rapid change in monetary policy and allow the full impact of our previous measures to be realized,” he said.
On the first day of debate at the central bank’s annual forum, which brings together central bankers, academics, financial and policy experts, Lagarde assured that the purpose of Tuesday’s speech “is not to signal any future decisions.” “. , but to articulate the challenges that 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 or even claim victory,” he stressed.