Lagarde speech: Uncertainty could weigh on demand
Christine Lagarde, President of the European Central Bank (ECB), explains the ECB's decision to leave key rates unchanged at the February policy meeting and responds to questions from the press.
Key quotes
"Growth is driven by services, notably in IT."
"Manufacturing is resilient."
"Construction momentum is picking up."
"Government spending should contribute to domestic demand."
"Business investment should strengthen further."
"Firms increasingly investing in digital tech."
"Indicators of underlying inflaiton have changed little."
"Forward looking indicators and surveys point to continued moderation in labour costs."
"Most measures of longer term inflation expectations stand around 2%."
"Euro area faces volatile policy environment."
"Uncertainty could weigh on demand."
"Friction in international trade could disrupt supply chains, weaken exports."
ECB FAQs
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
Recommended Articles
