2023-09-25 18:30:27
The president of European Central Bank (ECB)Christine Lagarde, said this Monday that interest rates in the eurozone will will remain at “sufficiently restrictive” levels “as long as necessary” for the inflation go down towards the 2% target.
“We consider that our rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation towards our objective,” he said in a debate with the European Parliament’s Economic Affairs Committee.
Lagarde thus reiterated the message that the institution has been repeating since on September 14 it decided to raise another 25 basis points interest ratesup to 4.5% in the case of the governing rate, without yet determining how long they should remain at this level.
He insisted that Future interest rate decisions will depend on your inflation outlook depending on the incoming economic data, the dynamics of underlying inflation and the strength of the transmission of its monetary policy; and he refused to give any indication as to whether there will be new hikes.
He reiterated, however, that they are not thinking about a drop and that the Government Council “has not discussed rate cuts”.
Aware of the “suffering it inflicts”
Lagarde assured that the ECB “has in mind the suffering inflicted” by the increase in interest rates, but defended that the faster inflation reaches 2% and the more stable prices are, “the less painful it will be from now on for those who invest and those who have borrowed.”
“We know that 30% of households in the Member States have variable rate mortgages and it is hard. And we know that the price of fuel (…) is also weighing on households with lower incomes, but we also know that our duty is to return inflation to its objective,” he assured.
The ECB president stressed that inflation is falling, “but is expected to remain too high for too long” and noted, in particular, that “domestic price pressures remain strong”, with services inflation driven by the spending on vacations and trips and “high wage growth.”
March of the economy
He also highlighted that the eurozone economy is expected to weaken in the third quarter of this year, after having stagnated in the first half, impacted by lower demand for eurozone exports, tougher financial conditions and the weakening of the services sector. .
The latest ECB projections lowered the growth forecast for this year and next, al 0.7% and al 1%respectively, and suggest that inflation will moderate to 5.6% at the end of 2023, to 3.2% in 2024 and will approach the target in 2025, with 2.1%
On the other hand, Lagarde once again asked the governments of the eurozone to withdraw the support measures they adopted in the face of the energy crisis now that it is dissipating to “avoid increasing inflationary pressures in the medium term.”
He also called on them to adopt fiscal policies aimed at “gradually reduce the high public debt” and increase the productivity of the European economy.
In this sense, he urged finding an agreement on the fiscal discipline rules of the European Union “before the end of the year” to have a new framework when governments have to prepare their budgets for 2025 in the fall of 2024.
“If it does not happen, given the succession of elections in the member states, to the European Parliament, it is likely to be postponed and postponed for too long,” Lagarde said.
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Another topic of discussion at the hearing was the excess liquidity that the system currently has, despite the fact that, as Lagarde shared with the MEPs, it has been reduced by one trillion euros in the last year for two reasons.: repayments of loans to banks within the third round of long-term refinancing operations (TLTRO III) y the sale of securities acquired in the asset purchase program.
Within this point, the president of the ECB recalled that the bank is carrying out a review of its operating framework to establish the optimal size and composition of its balance sheet – and therefore the appropriate level of excess liquidity -, an exercise that It hopes to conclude during the spring of 2024.
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