ECB’s Lagarde: Should Guard Against Premature Withdrawal of Support
7 October 2020
By David Barwick – FRANKFURT (EconoStream) – It is important that the support measures of the European Central Bank not be removed too soon, ECB President Christine Lagarde said Wednesday.
In a written interview with Harvard International Review, Lagarde, according to a text provided by the ECB, said that reaching the central bank’s inflation objective required substantial stimulus.
Asked what long-term economic effects she expected from the ECB’s guarantee of a safety net of policy steps until at least mid-2021, Lagarde avoided answering, focussing instead on the need for authorities to respond to the shock of the pandemic. The ECB’s contribution has ‘contributed to avoiding an even deeper recession and a credit crunch that would have left deep and long-lasting scars on our economy’, she said.
‘However, we should guard against the premature withdrawal of these support measures’, she continued, which is why the ECB announced its intention to leave them in place until the crisis has passed, and in any case until the end of June 2021.
The ECB’s third series of targeted longer-term refinancing operations (TLTRO III) is ‘of great importance to ensure the flow of credit to especially smaller and medium-sized firms and to households’ she said, and has made it possible to avoid an adverse feedback loop.
Although financing conditions have improved, ‘inflation is still very distant from levels in line with our inflation aim’, she said. ‘So we need to maintain an ample monetary policy stimulus to reach our objective.’
Lagarde noted that job retention schemes had been effective in containing unemployment, the jobless rate would nevertheless show ‘a significant increase’ over coming quarters, rising from 7.3% in 1Q 2020 to a projected 9.5% in 2021 and then improving to 8.8% in 2022.