Interest rates are and will continue to be the main instrument of the economy. European Central Bank To combat inflation and maintain price stability, the ECB will continue to increase as needed. This was stated by the chairman, Christine Lagarde, during your regular monetary dialogue with european parliament economic affairs committee admitted that price increases have not yet reached the ceiling. “We are not done with inflation. We still have work ahead of us and we will raise interest rates as necessary to bring inflation back to reasonable levels.” 2% in the medium termhe explained, reiterating that the decisions of the governing council will depend on the data and that a meeting will be held.
“Higher interest rates reduce demand pressures by making borrowing more expensive and affecting the spending, savings, borrowing and investment of citizens and businesses. “This will put downward pressure on prices, but it will take some time for the adjustments to be felt in the economy.” risk of side effects.
Meanwhile, the ECB chief does not dare to predict that inflation has peaked. “I think there is a lot of uncertainty. It is difficult to say that it has reached its peak. It will obviously decrease in the long run as the bottlenecks that suppress demand and our monetary policy will gradually disappear”, but “we do not see that it is possible to say that we have reached the inflation ceiling,” stressed economists on which issues keep upside risks.
Hence his conclusion: “We expect to continue to raise rates to the levels necessary to ensure a timely return of inflation to our 2% medium-term target.” Considering the “major uncertainty” and “complex turmoil” affecting the economy, an increase will be determined “depending on the data” and in the form of “meeting meeting”. How far forward and how quickly we do this will depend on our updated outlook, the persistence of shocks, the response of wages and inflation expectations, and our assessment of the monetary policy transmission. radical and very persistent” inflationary evolution.
consecutive upgrades
Since last July, the ECB has responded with three 200 basis points of cumulative rate hikes at “the fastest pace in our history” according to Lagarde, and a recalibration of long-term refinancing operations (TLTROs) to support the transmission of the increases. contributes to the normalization of the terms of bank loans and the balance sheet of the Eurosystem. Moreover, next meeting of the board of directorswill determine the basic principles for reducing the amount of bonds in the portfolio within the scope of the asset purchase program in December. “It is appropriate for the balance sheet to normalize in a measured and predictable way over time,” Lagarde said.
attribution evolution of wages, Lagarde stressed that the strength of the labor market will likely support the rise in wages, with the historically low rate of 6.6%, as the data released show that wages are recovering. However, sustained high inflation can lead to unrealistic inflationary expectations that will later put pressure on wage negotiations and pricing. “The resulting wage and price spirals will not only have the opposite effect in supporting real incomes for the entire economy, but will also hamper the productive capacity of the economy as a whole,” he added.
Lagarde also urged governments to adopt budget policies prudent measures that do not increase inflationary pressures. As both the European Commission and the Eurogroup recommend, financial support measures should be “specific, adapted, ad hoc and selective” so that the magnitude of the fiscal impulse is limited and benefits those who need it most, without weakening incentives. to reduce energy demand and not stay longer than absolutely necessary. At the same time, governments need to implement budgetary policies that lead them to gradually reduce high rates of public debt,” he said.
Source: Informacion
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