The president of the ECB on rates
“We can be sure of one thing: we will achieve price stability and we will not compromise on the commitment to bring inflation back to 2% in the medium term”. She said it, the president of the BCEChristine Lagarde, in her keynote address at The ECB and Its Watchers annual conference pointing out that “to this end we will follow a solid strategy, which is based on data and sees us ready to act, but without compromising on our primary objective”.
No commitment, therefore, on increases or a stop by the ECB president who quotes Voltaire: Uncertainty is an uncomfortable position. But certainty is an absurd position. In the face of new and overlapping shocks, coping with uncertainty is currently our only choice,” he added.
After the euro area was hit by an inflationary shock, which is spreading through the economy, the cost of living is now expected to show this year”a sharp decline – he said – due to the drop in energy prices and the easing of supply bottlenecks, but the dynamics of underlying inflation remain vigorous”. Against this backdrop, “our goal is clear: we need to promptly bring inflation back to the medium-term objective and we will do so. However, we need a solid strategy” which in the current situation “requires a data-based approach to define monetary policy and a clear reaction function, so that public opinion understands the sources of information that will be important for us”.
Lagarde then explained that the future of monetary policy “will be determined by three factors: our assessment of the inflation outlook in the light of the most recent economic and financial data, the dynamics of underlying inflation and the intensity of the monetary policy transmission”. At the same time, looking at the tensions on stock exchanges and banks in recent sessions, “there is no need for compromises between price stability and financial stability. We have a whole range of tools to provide liquidity to support the financial system, if needed, and to preserve the orderly transmission of monetary policy,” he assured
A passage on the European banking sector which “enjoys good resilience and solid capital and liquidity positions”, but “in light of the recent volatility in financial markets we are ready to act and provide, if necessary, liquidity to support the financial system and to preserve the orderly transmission of monetary policy”.
“But it must be clear that there is no need for compromises between price stability and financial stability. As we have demonstrated time and time again, we are able to establish the appropriate monetary policy stance to keep inflation at bay and at the same time use other tools to address risks to monetary policy transmission,” he argued. We did so when we decided to use reinvestments more flexibly under the Pandemic Emergency Purchase Program and when we approved the monetary policy transmission mechanism backstop. Thanks to these programs, the normalization of rates has proceeded smoothly. (Ticker)