Image: APA/AFP/KIRILL KUDRYAVTSEV
The monetary policy course still depends on the data situation, said ECB President Christine Lagarde on Thursday before the European Parliament in Brussels. The Frenchwoman specifically mentioned the prospects for inflation development and the dynamics of basic inflation.
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However, Lagarde warned against a hasty easing of monetary policy. “The last thing I want to see is that we make a hasty decision that causes inflation to rise again and we have to take more countermeasures,” Lagarde said. The ECB Council does not yet have enough evidence that the medium-term inflation target of two percent will be achieved sustainably.
ECB has tightened monetary policy significantly
The German representatives on the ECB Council recently made similar statements to Lagarde. Bundesbank President Joachim Nagel and ECB Director Isabel Schnabel are seen as advocates of a strict monetary policy that is primarily aimed at combating inflation. Other representatives of the central bank, such as the Italian central bank chief Fabio Panetta, tend to take a looser line and earlier interest rate cuts.
In response to the massive increase in inflation by the end of 2022, the ECB has significantly tightened its monetary policy. The important deposit rate is currently four percent, after being at zero until mid-2022. Inflation in the currency area had temporarily climbed to more than ten percent, primarily due to sharp increases in raw material and energy prices due to the Russian attack on Ukraine. Price inflation is now decreasing again.
Wage development with increasing importance
However, according to Lagarde, wage developments are becoming increasingly important for inflation developments. Because the workers demanded compensation for the rising prices. The development of wages and salaries depends crucially on collective bargaining.
The ECB boss expects the process of declining inflation rates to continue. However, in order to change course, the central bank’s monetary policy council must be confident that the central bank’s inflation target of two percent will be achieved in the long term.
Lagarde thereby reiterated statements from the most recent ECB interest rate meeting at the end of January. Due to falling inflation and the weakening economy, analysts and investors are wondering when the ECB will initiate the monetary policy turnaround with falling key interest rates. Many experts see a possible date in the middle of the year. The central bank itself has not yet made a decision.
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