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“Our work is not done yet. Barring a material change in the inflation outlook, we will continue to hike rates in July. This was stated by the president of the ECB Christine Lagarde speaking at the forum of the central institute in Sintra (Portugal). “The overall impact of the 400 basis point rate hikes decided since last July has not yet fully materialised,” she added.
“Inflation in the euro area is too high and will stay that way for too long. But the nature of the inflation challenge in the euro area is changing», continued Lagarde in the opening speech of the second day of work of the ECB Forum in Sintra. “We are seeing the rate of inflation fall as the shocks that originally drove up inflation abate and our monetary policy actions are fed through to the economy,” Lagarde said. But the transmission of these shocks is still ongoing, making the decline in inflation slower and the inflationary process more persistent. This persistence is caused by the fact that inflation is working its way through the economy in stages as different economic agents try to pass costs on to one another. Monetary policy makers – argued Lagarde – must address this dynamic decisively to ensure that it does not lead to a self-fulfilling spiral fueled by a de-anchoring of inflation expectations».
“In the Governing Council of the ECB, we have been clear that two elements of our political position will be fundamental: we will have to bring rates to sufficiently restrictive levels and keep them there for as long as necessary”, remarked the president.
«It is unlikely that in the near future the central bank will be able to declare with absolute certainty that the maximum level of interest rates has been reached: the decisions of our monetary policy must in fact be defined from time to time at each meeting and continue to be guided from the data,” Lagarde stressed.