ECB’s Lagarde: ‘Quite a Bit of Time’ to Decide If We Must Do More

8 July 2020

By David Barwick – FRANKFURT (EconoStream) – The European Central Bank has ‘quite a bit of time’ to decide whether the measures it has taken so far are sufficient to counter the economic fallout from the pandemic, ECB President Christine Lagarde said Wednesday.

In a video interview with Financial Times, Lagarde, according to a text made available by the ECB, rejected talk of deflation, describing the inflationary outlook beyond the short term as dominated by ‘total uncertainty’.

Asked about the limits of the ECB’s pandemic emergency purchase programme (PEPP), Lagarde indicated that no further adjustments would be made too soon, as authorities consider incoming data to determine whether ‘our tools are properly calibrated and can respond adequately to the current situation.’

‘It's going to take a while before we have a solid response from the economic terrain, if you will, to really assess the effectiveness of what we do, as well as the prospects of what will happen’, she said. ‘But we have done so much that we have quite a bit of time to assess that carefully.’

Rather than talk of deflation, Lagarde said, she preferred to talk about ‘disinflationary forces in the short term, and then total uncertainty as to the medium-to-longer term.’ Indeed, the net effect of all relevant forces ‘may well be inflationary in the longer term’, she said. ‘It's part of the uncertainty that abounds at the moment.’

The ECB is ‘not the only game in town’ as far as buying sovereign debt, she said, disputing the implication that governments were too reliant on the ECB’s purchases for these to end. There are ‘many, many other investors and purchasers out there’ and the market is ‘vibrant’, she said.

Lagarde reconfirmed the ECB’s ‘unlimited’ support for the euro. The price stability mandate demands that the ECB ‘pay very close attention’ to its monetary stance and the transmission of policy, and that it be ‘attentive that financing is not tightened to the point where economic actors cannot develop activity’ she said.

Though the ECB would continue to deploy available instruments in the pursuit of price stability, Lagarde said the pending strategy review was ‘[o]ne caveat’ in this context, given that everything up to and including the definition of price stability would be subject to examination. ‘But I have no doubt that we will be driven by our price stability mandate on a going-forward basis’, she said.

The economic recovery was ‘like no other’, she said, predicting it would be ‘constrained’, ‘uncertain’ and ‘fragmented across the world’. With respect to the unemployment situation in Europe, she said, ‘[w]hat will matter is what comes next’, in particular whether economic improvement takes place as jobless benefits and furlough schemes are phased out. ‘That's really one of the big issues’, she said.