The President of the European Central Bank (ECB) Christine Lagarde estimated on Wednesday that the recent tensions around the banking sector generate “new risks” for the economy, at a time when the monetary institute still has “some way to go” to fight inflation.
The financial turmoil linked to the recent failures of several banks have created new downside risks for the economy, Ms Lagarde told a Frankfurt forum.
In the face of accumulating shocks and changing geopolitics, the degree of uncertainty should remain high, she added.
The scenario of the institution of a return of inflation towards 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 evolution has increased, requiring a robust strategy for the coming period, insisted the former economy minister.
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 prices have spread with underlying inflation, excluding the sectors energy and food, which currently fluctuates between 4 and 8%, according to Ms. Lagarde.
It was therefore necessary to raise the rates to sufficiently restrictive levels, in order to curb demand, according to Lagarde. This process is only starting 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 are not committing to continuing to increase rates or 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.