ECB Lagarde’s speech: Inflation to stabilize to 2% target in the medium term
European Central Bank (ECB) President Christine Lagarde said in her introductory statement before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament during European trading hours on Thursday that the Eurozone inflation is expected to stabilize at the central bank’s 2% target in the medium term.
Remarks
We can now see that our efforts to bring inflation down have been effective.
We continue to expect inflation to stabilise at our 2% target in the medium-term.
We therefore decided to keep key ECB interest rates unchanged at our monetary policy meeting earlier this month.
We will continue to follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.
Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it.
We are not pre-committing to a particular interest rate path.
The ECB pays close attention to households’ inflation perceptions.
Inflation perceptions matter for three reasons.
First, perceptions directly influence economic behaviour.
Second, perceptions of current inflation shape expectations about future inflation.
Third, inflation perceptions can influence public trust in institutions - including the ECB.
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.
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