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July and September signal from ECB President Lagarde

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Lagarde spoke at the “Monetary Dialogue” session of the Economic and Financial Affairs Committee of the European Parliament (EP).

Pointing out that the economic and geopolitical landscape facing Europe has changed dramatically since the Russia-Ukraine war, Lagarde said the conditions for monetary policy have changed significantly.

For this reason, Lagarde recalled that she had decided to take further steps in the normalization of monetary policy at the June meeting.

Noting that high energy costs, supply disruptions and growing uncertainty affecting the manufacturing sector in particular have put pressure on the eurozone economy, Lagarde said activity in the service sector supports growth and they expect the recovery in this sector to strengthen in the coming months.

Claiming to expect a gradual decrease in the negative effects of high energy costs, deterioration in trade, increased uncertainty and high inflation on disposable income, Christine Lagarde said she expects 2.8% growth in the area. of the euro this year and 2.1% in 2023 and 202. has done so.

Recalling that inflation in the euro area rose to 8.1 percent in May, Lagarde pointed out that energy prices were 39.2 percent higher than a year ago.

Expressing that food prices increased by 7.5% in May due to the importance of Russia and Ukraine in manufacturing, Lagarde said: “As a result, price increases are becoming more common across all sectors and industries. basic measures of inflation are increasing. ” he said she.

Emphasizing that they expect wage growth to accelerate this year, Lagarde said these developments are reflected in long-term inflation expectations.

Recalling that their institutions have significantly revised their base inflation forecasts, Lagarde said: “The forecasts show that inflation will remain at undesirable levels for a while. Annual inflation is projected to be 6, 8% in 2022. This will increase to 3.5% in 2023 and 2024. A decrease of 2.1% is expected, he said.

“The current inflationary environment, which is well above our target, is clearly a challenge,” said Lagarde, recalling that the Governing Council of the ECB decided to take further measures on monetary policy at its meeting on 8-9. June.

ECB President Lagarde, noting that she had decided to end net purchases under the asset purchase program on 1 July, said: “We intend to raise the main bank rate by 25 basis points at the monetary policy meeting of July”. used the phrase.

“We expect the ECB to raise core interest rates again in September.” Lagarde said this rate will be determined based on the medium-term inflation outlook.

Lagarde stressed that a larger hike would be appropriate at the September meeting if inflation prospects persist or worsen over the medium term.

Explaining that they expect a gradual but continued rise in interest rates after September, Lagarde stressed that the pace of monetary policy adjustment will depend on incoming data and how inflation develops over the medium term.

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