ECB’s Lagarde: Monetary Policy Impact on Inflation Yet to Fully Materialise

21 November 2023

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Tuesday said that the main impact of the ECB’s restrictive monetary policy stance on inflation would take time to be felt and that its intensity was yet to be seen.

In a speech at an event organised by the German Ministry of Finance in Berlin, Lagarde said that financing conditions were rapidly affected by the ECB’s tighter monetary policy, ‘[b]ut its peak impact on inflation will only materialise with a lag – and given the unprecedented scale and speed of our tightening, there is some uncertainty about how strong this effect will be.’

‘We have faced a major inflation shock and we have made a major policy adjustment in response’, she said. ‘The effects of that adjustment are increasingly being felt and inflation pressures are easing.’

It was not appropriate to declare victory against inflation, she warned.

Rather, the present phase of monetary policy required the ECB to be watchful, ‘but always firmly focused on our mandate of price stability’, she said.

‘We need to be attentive to the different forces affecting inflation: the unwinding of past energy shocks, the strength of monetary policy transmission, the dynamics of wages and the evolution of inflation expectations’, she said.  

Interest rates would remain at ‘restrictive levels for as long as necessary’, she said, and future decisions would be made accordingly to incoming data, ‘meaning that we can act again if we see rising risks of missing our inflation target.’