ECB, Lagarde: “Further rate hike in July”

“Our work is not finished yet, barring a substantial change in the inflation outlook, we will continue to raise rates in July,” said ECB president Christine Lagarde, speaking at the central bank’s forum in Sintra, “Thus we risk the recession,” Tajani replies

“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 during 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 explained. Vice-Premier Antonio Tajani has the opposite opinion, who during the Confsal congress replied to Lagarde as follows: “I don’t think that continuing to raise interest rates is going in the direction of growth, above all I don’t agree with the announcements made well in advance as was done today by Lagarde. We suffer from inflation that is different from the USA, caused by the cost of raw materials due to the war. Today, increasing the cost of money means putting businesses in difficulty. With interest rates that are too high, you risk a recession”.

“Inflation is changing its nature”

“Inflation in the euro area is too high and will likely remain so for too long. But the nature of the challenge it poses is changing. The inflation rate is declining as the shocks that initially drove it to and with the progressive transmission of our monetary policy interventions to the economy. However, the effects of these shocks are still playing out, making the decline in inflation slower and the inflationary process more persistent,” continued Lagarde. “This persistence – the president pointed out – is attributable to the spread of inflation in the economy in stages, as various economic operators try to pass on costs to each other. Although the projections of the ECB experts had foreseen this for some time , we revised our assessment based on the new data.”

“Unlikely we will say the maximum level of rates”

Then again on rates: “It is unlikely that in the near future the central bank will be able to declare with absolute certainty that the maximum level of 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 data-driven.Two sources of uncertainty affect the desirable level and duration of our interest rate policy.First, as the persistence of inflation is surrounded by uncertainty, the maximum level of rates will be determined on the basis of circumstances. It will depend on how the economy and the various forces I have described evolve over time. And it will need to be subject to constant review. Second, the intensity of monetary policy transmission is surrounded by uncertainty. transmission links current decisions and expectations about future monetary policy, thereby influencing the stance of monetary policy. The actual intensity of pass-through that will be observed in practice will determine the effect of a given rate hike on inflation, which will be reflected in the expected trajectory of monetary policy”. Lagarde then concluded: “The uncertainty regarding pass-through derives from the fact that the euro area has not experienced a sustained phase of rate hikes since the mid-2000s and has never seen such rapid increases. This is why we wonder about the pace and intensity of the transmission of monetary policy to businesses and households, respectively through interest-sensitive spending and the payment of mortgage loans”.