Lagarde promotes patience in the ECB despite the “pain” of rising prices

Christine Lagarde has called on the European Central Bank to remain “patient” and to refrain from tying the knot prematurely, even though the rise in eurozone inflation is “unwelcome and painful”, especially for the poor.

“At a time when purchasing power is already being squeezed out of large amounts of electricity and fuel, improper tightening represents an unforeseen hurricane,” the ECB president told a bank conference in Frankfurt.

“We should not rush for a quick fix when we face inflation or falling prices,” Lagarde said, pointing out that the ECB will be a great encouragement to their meeting next month though. some central banks withdrawal treatment.

Lagarde’s comments knocked the euro, which was already affected by business concerns about Covid fever in European areas, dropping 0.7 percent against the dollar to sell at $ 1.284, down from a 16-month decline. larger plus sterling and yen. Switching the price of Swiss Franc to Swiss Franc for six years.

The common currency had already lost out last week in anticipation of rising interest rates between the eurozone and other major financial powers, with central banks such as the US Federal Reserve and the Bank of England responding to the recent rise in inflation and strong inflation. process.

The Eurozone government bond agreed with the ECB’s long-term policy, and was further strengthened by new German and Austrian restrictions established to prevent the spread of Covid-19. Germany’s 10-year government bond yield, which guarantees a euro for the whole euro zone, fell by 0.04 percent to less than 0.32 percent, the lowest in two months.

“The market is afraid of further Covid-related disruptions and how it could affect growth,” said Lee Hardman, a financial analyst at MUFG. “This really helps Lagarde’s efforts to change the expectations of the ECB’s initial rise.”

Last month, inflation in the euro area hit 13-year-old of 4.1 per cent, above the ECB’s 2 per cent target, which led investors to speculate that the ECB would raise prices next year. But Lagarde said many of the drivers of inflation, such as rising electricity prices and cyberbullying, could “disappear in a short period of time”.

“These price cuts are unacceptable and painful – and naturally there are long-term concerns,” he added. “We find the concerns very serious and monitor what is going on.”

The eurozone economy was facing an “amazing mix, which is related to economic growth but also to progress,” Lagarde said. “Preliminary legislation may result in an increase in household income.

“At the same time, it will not address the causes of inflation, as electricity prices are set around the world and supply constraints will not be eliminated by the ECB monetary policy,” he added.

Many investors expect the ECB to announce next month that its € 1.85tn procurement program, which was launched last year to end the epidemic, will end by March 2022. However, the central bank is expected to take action. implement its long-term procurement program to reduce any sales in bond markets.

By committing ourselves not to raise prices before stopping buying bonds, next month’s election will provide an important signal at a time when interest rates are rising.

Lagarde pointed out that the ECB should buy bonds for many years next year, saying: “Even after the crisis, it will be financially viable – plus a fair purchase – to support recovery. And a steady return on inflation to what we want 2 percent.

“We do not see the conditions – either in the economy or in the sector – for inflation rates to rise above what we need to do to sustain ourselves,” he said, before concluding: it can happen. ”

However, there are growing divisions among ECB price makers at a time when they may be cheap. Jens Weidmann, the outgoing chief executive of a large German bank and a member of the ECB’s governing body, told the Frankfurt incident: “Rising inflation rates will probably take longer than expected in the past.”

“Given the uncertainties about the rise in inflation, fiscal policy should not be commended for its long-term growth,” Weidmann said. “In order to continue to anticipate rising inflation, we need to keep repeating: if there is a need to protect inflation, monetary policy must be stable.”