ECB’s Lagarde: Favourable Financing Conditions Essential, Recovery Increasingly Advanced

14 October 2021

By David Barwick – FRANKFURT (Econostream) – Favourable financing conditions remain essential and the European Central Bank Governing Council is prepared to do as required to achieve price stability, ECB President Christine Lagarde said Thursday.

In a statement to the International Monetary and Financial Committee during the IMF Annual Meetings, Lagarde said that ‘[p]reserving favourable financing conditions over the pandemic period is essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability’

The Governing Council ‘stands ready to adjust all of its instruments, as appropriate, to ensure that inflation stabilises at its 2% target over the medium term', she said.

Lagarde described the euro area recovery as ‘increasingly advanced, despite supply bottlenecks and continuing uncertainty about the pandemic.’

Third-quarter growth was apparently strong, she said. Medium-term risks were ‘broadly balanced’, she said, with upside risks potentially materialising ‘from higher confidence effects and further spending by consumers.’

Inflation would increase further in 4Q, but this was mostly due to temporary factors that ‘should fade out of annual rates of price changes in the course of next year’, she said. Inflation would correspondingly decrease, then gradually mount, but undershoot the ECB’s target over the medium term, she said.

Supply bottlenecks and stronger-than-expected wage growth were upside risks, she said. ‘So far, there is no evidence of significant second-round effects through wages and inflation expectations in the euro area remain anchored, but we continue to monitor risks to the inflation outlook carefully.’