Lagarde was speaking at the “Monetary Dialogue” session of the Economic and Financial Committee of the European Parliament (EP).
Lagarde explained that over the past year the ECB has embarked on a rapid and comprehensive process to normalize monetary policy: “First, we ended net asset purchases in a matter of months. Then we started raising our policy rates at the fastest rate ever.” used the phrase.
Lagarde explained that the war between Russia and Ukraine is threatening energy security, disrupting supply chains and pushing inflation well above targets.
“Europe has been hit particularly hard”
Christine Lagarde pointed out that the effects of the war were being felt not just in Europe but around the world and said this had prompted central banks to hike interest rates and tighten financing conditions around the world. “Europe has been particularly hard hit, given our proximity to war and our dependence on imported energy,” Lagarde said. he said..
Lagarde recalled that inflation was in double digits for the first time since the creation of the euro zone in October, the main reason being high energy costs, and explained that despite the energy crisis and global shortages, limited supply increased the reopening of the economy after the epidemic Demand and increased core inflation.
“This surge in inflation is affecting everyone, but some are feeling it more than others,” Lagarde said. used the phrase.
Lagarde stressed that there is a big difference between the inflation rate of low- and high-income people, especially low-income people who spend a larger chunk of their budget on basic necessities like food, electricity, gas and heating.
“Growth is slowing down quickly”
Lagarde explained that there are also differences in inflation rates across eurozone countries and that various shocks are negatively affecting real economic activity.
“Now growth is slowing rapidly as a result of the war. High inflation is reducing spending and production, lowering people’s real incomes and increasing costs for businesses.” Lagarde said high uncertainties, tightening financial conditions and weaker global demand will dampen growth for the remainder of this year and early next.
Lagarde reminded that a third of citizens in the polls see the rising cost of living as the most important problem facing the EU.
Noting that the ECB is working to fulfill its duty to ensure price stability, Lagarde recalled that three interest rate hikes, which have resulted in a total increase of 200 basis points since July, had been made to control inflation and that changes had also been made to long-term refinancing operations.
“In December, we will also lay out the key principles for reducing bonds in our asset purchase program portfolio,” Lagarde said. said.
“It will take some time for rate hikes to be felt”
Noting that interest rates are the main tool in the fight against inflation, Lagarde explained that it will take some time for interest rate adjustments to be felt in the economy.
Lagarde pointed out that in the current environment of high inflation, prudent fiscal policies should be pursued so as not to add to inflationary pressures, and stressed the importance of targeted, specific and temporary financial support.
Lagarde said it was committed to bringing inflation down to the medium-term target of 2 percent and said it expected further rate hikes to do so.
Lagarde stated that in the face of high uncertainty and complex shocks, the Governing Council will base its decisions on data, adding that it will determine what steps to take based on the current economic outlook, the status of shocks, wages and taxes inflation expectations will undertake .
“Inflation will continue to rise”
ECB President Lagarde stressed that he expects inflation to rise further in the euro zone.
Lagarde explained that eurozone inflation has not yet peaked and said there is a risk of higher-than-expected inflation.
Noting that ECB economists say the risk of inflation is rising, Lagarde said: “We don’t see any factors that would lead us to believe that we have peaked in inflation and that it will come down any time soon,” he said.
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