— President Christine Lagarde Acknowledges that Inflation is More Likely to Overshoot Target
(MaceNews) – The European Central Bank “will not be complacent” about record-high eurozone inflation, a more hawkish stance from ECB President and long-term dove Christine Lagarde Thursday.
“Compared to December, inflation risks are tilted to the upside, particularly in the near term,” Lagarde told reporters following the ECB’s governing council meeting on Thursday. The bank’s statement on policy reflected the view that “inflation is more likely to overshoot than undershoot,” she said.
The council left rates unchanged and reaffirmed its intention to wrap up its Pandemic Emergency Purchase Programme by the end of March, in line with December guidance. The ECB will beef up its long-running Asset Purchase Programme to €40 billion per month in the second quarter, before reducing purchases to €30 billion in the third quarter and returning to current level of €20 billion in the closing months of 2022.
That’s despite a sharp rise in inflation over the past several months. Eurozone HICP accelerated to a euro-era high of 5.1% in January from 5.0% in December and 0.9% in the first month of 2021, according to Eurostat data released on Wednesday.
Lagarde deflected questions over dissent amongst governing council members; minutes of the December meeting suggested that not all representatives agreed with Lagarde’s cautious stance. There was “unanimous concern” about recent “inflation numbers,” Lagarde told reporters, referring to a “general consensus” over Thursday’s policy decision.
The president punted a more detailed discussion of policy to a later meeting. Inflation “will be examined in more depth at the March meeting” when the governing council will receive updated forecasts. Rate setters will also discuss the pace of quantitative at the next meeting.
However, Lagarde repeated her insistence that the ECB will refrain from raising rates until the completion of net asset purchases. “We will not be complacent” about inflation … but “there was a determination not to rush into a decision on” raising rates, she said. “We’re not there yet.”
Lagarde did not reiterate her previous guidance that rates “are very unlikely” to rise this year, and financial markets have priced in two small rate rises by the end of 2022, taking the marginal lending rate to -0.25%. The president deflected questions about whether markets have have jumped the gun in predicting ECB rate movements.
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