The president of the European Central Bank (ECB), Christine Lagarde, said this Monday that interest rates in the eurozone will remain at “sufficiently restrictive levels as long as necessary” for inflation to fall towards the 2% objective. “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 target,” she 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 interest rates by another 25 basis points, up to 4.5% in the case of the governing rate, without yet determining how long they should remain at this rate. level. He insisted that future interest rate decisions will depend on his inflation outlook based on incoming economic data, underlying inflation dynamics and the strength of his monetary policy transmission.
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.”
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 ECB’s latest projections lowered the growth forecast for this year and next, to 0.7% and 1.0%, respectively, and suggest that inflation will moderate to 5.6% at the end of 2023, at 3.2% in 2024 and. It 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.” They also called on them to adopt fiscal policies aimed at “gradually reducing the high public debt” and increasing 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.
