The President of the European Central Bank (ECB) Christine Lagarde on March 16, 2023 in Frankfurt (AFP/Archives/Daniel ROLAND)
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.
Financial turmoil linked to recent bank failures has created “new downside risks” to the economy, Lagarde told a forum in Frankfurt.
“In the face of accumulating shocks and shifting geopolitics, the degree of uncertainty is expected to remain elevated,” 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 as to its evolution has increased”, requiring to have “a robust strategy for the period to come”, 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 prices “have spread” with inflation “under underlying”, excluding the energy and food sectors, which currently oscillates “between 4 and 8%”, according to Ms. Lagarde.
It was therefore necessary to raise the rates to levels “sufficiently restrictive, in order 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 are not committing to continue to increase rates, or to end the 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.
© 2023 AFP
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