![]() ![]() ![]() And we also communicated a clear upward path for rates, so that the public could be confident that monetary policy was on an anti-inflationary path, and that rates would soon leave accommodative territory. That is why we put a great weight on the pace of our actions, hiking rates in large increments. demonstrating, through actions and commitments, that monetary policy would cover the necessary ground decisively. This initially placed important emphasis on signalling, i.e. So, we had to adjust, as quickly as possible, a stance that had become inadequate. Our policy stance was starting from highly accommodative levels, having been tailored to the very-low inflation environment of the past decade and the initial deflationary risks of the pandemic. That favourable demand environment allowed firms to pass rising input costs through to prices much faster and more strongly than in the past. Second, we faced a positive demand shock caused by the reopening of the economy after the pandemic. This significantly increased input costs for all sectors of the economy. Last year, inflation in the euro area surged strongly, and spread deeply, because it was driven by two types of shocks which hit the economy at the same time.įirst, we underwent an unprecedented series of negative supply shocks caused by pandemic-induced supply chain disruptions, Russia’s invasion of Ukraine and the ensuing energy crisis. And I will explain the reaction function that will govern our future rate decisions. In my remarks today, I will discuss our policy path so far and what lies ahead. We have plenty of tools to provide liquidity support to the financial system if needed and to preserve the smooth transmission of monetary policy. To that end, our future policy path will be determined by three factors: our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.Īt the same time, I have made clear that there is no trade-off between price stability and financial stability. In current conditions, a robust strategy calls for a data-dependent approach to making policy and a clear reaction function so that the public understands the sources of information that will be important to us. As John Maynard Keynes once observed, “it would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain”. In such an environment, our ultimate goal is clear: we must – and we will – bring down inflation to our medium-term target in a timely manner.īut to achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today. While headline inflation is likely to decline steeply this year, driven by falling energy prices and easing supply bottlenecks, underlying inflation dynamics remain strong. The euro area has been hit by an inflation shock, which is now working its way through the economy. Speech by Christine Lagarde, President of the ECB, at “The ECB and Its Watchers XXIII” conference ![]()
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