The European Central Bank won’t be rushed into withdrawing monetary stimulus as officials act to contain inflation running at almost four times their 2% target, President Christine Lagarde said.
“We need to be open about what we can and cannot do as a central bank,” she told European Parliament lawmakers. “For example, our monetary policy cannot fill pipelines with gas, clear backlogs at ports or train more lorry drivers.”
Facing the fastest inflation in euro zone history, Ms Lagarde turned more hawkish after the ECB met last month, refusing to rule out an interest rate rise this year. Some colleagues have since said such a scenario is possible, though others urge caution in responding to soaring prices that have prompted an aggressive response by the Bank of England.
The ECB is already paring back pandemic-era stimulus, and Ms Lagarde last week warned that tightening monetary policy too quickly could jeopardise Europe’s economic recovery. Raising rates “would not solve any of the current problems”, she told Redaktionsnetzwerk Deutschland.
“Any adjustment to our policy will be gradual,” she said in Strasbourg on Monday. “Our target is an inflation rate of 2 per cent over the medium term. To achieve this, we will take action at the right time.”
Money markets are pricing quarter-point increases by the ECB in September and December.
Several ECB officials have stressed in recent days the need for the shift in policy to be gradual.
Governing Council member Olli Rehn cautioned at the weekend against a strong reaction to short-term inflation, saying it was better to look at price projections for 2023 and 2024 – after the current energy spike and supply chain disruptions die down.
European Commission forecasts last week point to inflation coming in at 1.7 per cent next year – still short of the ECB’s goal.