ECB: Christine Lagarde rules out stagflation in euro zone

The ECB President believes that the current situation cannot be compared to that of the oil shock in the early 1970s.

European Central Bank President Christine Lagarde said on Saturday that high inflation combined with lasting stagnation is not the “referencefor which the institute is leaning, fueling the debate with a view to an upcoming first rate hike. “Although the unusual degree of uncertainty could mean a combined slowdown in growth and high inflation, the current situation cannot be compared to that of the 1970s.“says Christine Lagarde in an interview given to the Slovenian daily Delo.

Moreover, a spiral of wage increases in response to inflation had set in, fueling it, which “we do not see (…) today“, she added. His message temporarily punctuates a sequence provided with communication in the circles of central bankers in the euro zone, where everyone has given during the past week his idea of ​​the right time to decide on a first rate hike.

This will be a major step in the ongoing process of normalization of the accommodating monetary policy conducted in response to crises, in particular that linked to covid-19 from 2020. The institute has already made a gradual withdrawal of its redemptions massive amounts of debt launched in 2015 to counter excessively low inflation. These redemptions should be reduced to zero (in net) “at the beginning of the third trimester“, according to Christine Lagarde, and the adjustments of key rates “will take place some time later and will be gradual.” This leaves the possibility of debating a first rate hike – since 2011 – during the last monetary policy before the summer break, set for July 21, as suggested by several members of the ECB such as Isabel Schnabel, member of the executive board. .

The guardians of the euro should mainly decide according to the evolution of the war in Ukraine. This war “is above all a human tragedy» which also has «economic consequences beyond Ukraine” : she “weighs on growth and fuels inflation“, insisted Christine Lagarde.


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