The President of the European Central Bank referred to recent financial turbulence, such as the fall of Credit Suisse. JOHN THYS / AFP
The European Central Bank is still counting on the scenario of a return of inflation to around 2% in 2025.
European Central Bank President Christine Lagarde said on Wednesday that recent tensions around the banking sector are causing “new risks” for the economy, at a time when the monetary institute still has “way to goto fight inflation.
The financial turmoil linked to the recent failures of several banks has generatednew downside risksfor the economy, Ms. Lagarde said at a forum in Frankfurt. “In the face of accumulating shocks and changing geopolitics, the level of uncertainty is likely to remain high“, she added.
The institution’s scenario of a return of inflation to around 2% in 2025, if confirmed, shows that there is “a long way to go to contain inflationary pressures“, underlined the President of the ECB.
The ECB has raised its interest rates at unprecedented speed, raising them by 350 basis points since last July, in an attempt to contain inflation which peaked above 10% in October, in the wake of the Russian war in Ukraine. “However, inflation remains high and uncertainty about its development has increased», requiring to have «a robust strategy for the period ahead“, hammered the former Minister of the Economy.
The bet of a return to price stability, defined by an inflation rate of 2% in the medium term, is still far from being won: pressures on priceshave spread“with inflation”underlying“, excluding the energy and food sectors, which currently fluctuate “between 4 and 8%“, according to Ms. Lagarde.
It was therefore necessary to raise the rates to levels “restrictive enough to curb demand“, according to Lagarde. This process “only starts to take effect now“, she warned. For the continuation of the tightening of the floodgates of credit, the ECB has abandoned its discourse on the expectations of its actions, and wants to rely on the data of the moment when it meets its Governing Council.
“In other words, ex ante, we do not commit to continuing to raise rates, nor to ending increases.“, according to Ms. Lagarde. A certainty according to her,there is no contradiction between price stability and financial stability“. Moreover, this is not threatened for the moment in the euro zone, according to numerous declarations by financial authorities and political leaders.