The European Central Bank (ECB) would not be rushed into withdrawing monetary stimulus as officials act to contain inflation running at almost four times their 2 percent target, ECB President Christine Lagarde said.
“I don’t think that we’re in a situation of surging demand at the moment,” she told Francine Lacqua on Bloomberg Television from the World Economic Forum in Davos, Switzerland, yesterday.
“It’s definitely an inflation that is fueled by the supply side of the economy. In that situation, we have to move in the right direction, obviously, but we don’t have to rush and we don’t have to panic,” she said.
Photo: AP
Lagarde spoke a day after laying out her vision for the central bank’s next steps in a blog post.
The ECB is likely to exit negative monetary policy by the end of the third quarter, with a first interest-rate increase set for July, she said.
That prospective timetable signaling two quarter-point interest-rate hikes in the third quarter has irked some colleagues, because it would effectively exclude moving with a half-point increment, according to people familiar with the matter.
Some officials, including Bank of France Governor Francois Villeroy de Galhau, have also suggested that the ECB might end the year with positive interest rates. Traders are wagering on four 25-basis-point hikes by the ECB by the end of this year.
“When you’re out of negative, you can be at zero, you can be slightly above zero,” Lagarde said. “This is something we will determine on the basis of our projections, on the basis of our forward guidance.”
Lagarde refused to be drawn on whether the central bank might consider a 50 basis-point move.
Policymakers are walking a fine line as Russia’s invasion of Ukraine sent prices surging while denting confidence among businesses and households. New COVID-19 restrictions in China are putting additional strains on supply chains.
However, the ECB president downplayed the risk of an economic contraction, saying “for the moment, we are not seeing a recession in the euro area.”
She cited unemployment “at rock-bottom rates,” large household savings and the prospect for a strong summer for the tourism industry as forces that would offset negative shocks from the war and record inflation.
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