ECB’s Lagarde keeps pushing back on rate hike bets and hopes

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FRANKFURT (Businesshala) – Tightening monetary policy now to rein in inflation could stifle the euro area’s recovery, European Central Bank President Christine Lagarde said on Monday, emphasizing calls for tougher policy and market bets .

FILE PHOTO: The European Central Bank (ECB) headquarters building is seen in Frankfurt, Germany on March 7, 2018. Businesshala/Ralph Orlowski/File photo

With inflation already more than double its 2% target and likely to rise further later this year, the ECB is coming under pressure to abandon its ultra easing monetary policy and tackle price hikes that affect the purchasing power of households. reducing the.

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Speaking to EU lawmakers, Lagarde acknowledged that inflation growth will be higher and longer than it once was, but that it will fade over the next year, so policy action will now hit the economy as price growth is itself lower. starts happening.

“At a time when purchasing power is already being squeezed by high energy and fuel bills, an unreasonable tightening of financing terms is not desirable, and would represent an unreasonable headwind to the recovery,” Lagarde told the European Union on Economic Affairs. The matter said in the hearing of the committee of Parliament

“If we take a drastic step now, it could do far more harm than any good deed,” she said.

With commodity prices rising and supply chain constraints persisting, inflation is proving to be more sticky than once predicted.

Like anywhere else, the euro area bond market has moved into a state of high inflation and the prospect of tighter monetary policy in the coming months.

A key market gauge of euro area inflation expectations is not far off the ECB’s 2% inflation target and money market value, rising 10-bp for the first time in September 2022. Bond yields rose after Lagarde’s comments on Monday.

Lagarde reiterated that the conditions for a rate hike in 2022 are “very unlikely” to be met, but added that she cannot make the same commitment for next year.

“I don’t think I will venture into 2023, but certainly for 2022 I reiterate the point I made at that point of time,” she said.

Deutsche Bank chief executive Christian Sewing disagreed with the statement that inflation was temporary and called on global central banks to act.

“I think monetary policy should take countermeasures here – and as soon as possible,” Stitch said. “The projected panacea of ​​recent years – low interest rates coupled with stable prices – has lost its effect, and we are now grappling with the side effects.”

Lagarde acknowledged that inflation is likely to remain higher for a longer period of time, but bottlenecks are likely to ease next year and energy futures also point to a noticeable decline next year, indicating that inflation will fall.

He added that wage hikes could also accelerate, but reiterated that the ECB had still not seen price increases through the effects of the so-called second round.

Reporting by Balazs Corani and Francesco CanepaAdditional reporting by Tom Sims and Frank Seibelt Editing by Clarence Fernandez and Toby Chopra

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