ECB’s Lagarde: If Disinflation Progresses, the Monetary Policy Stance Will Change

11 April 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Thursday said that if inflation was further confirmed to be headed towards the 2% target, then the monetary policy stance would change.

During the press conference following the Governing Council’s meeting, Lagarde said, ‘We will be data-dependent and if the data continue to move in the direction of the disinflationary path that we see, then progress will be continued as well in the path that we adopt.’

Without committing to an interest rate cut in the next Governing Council meeting, she said, ‘[I]n June we know that we will get a lot more data and a lot more information, and we will also have a new projection.’

She repeatedly made reference to a new sentence in the monetary policy statement: ‘If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.’

The ECB was not committed to a particular rate path, she stressed, but rather ‘it will all depend on the data.’

During this meeting, ‘a few’ Governing Council members felt confident enough with the data that was available, but the vast majority felt the need for additional confidence on the basis of data available only in June, she said.

The disinflation path had fluctuations, Lagarde acknowledged, referring to them as ‘bumps on the road’ and assuring that they were accounted for in the projections.

‘We know that we are not going to [have] a linear decline on inflation over the course of the next months, but what our projections are telling us is that we will have those bumps on the road, if you will, but reaching the target in mid-25, so return[ing] to 2% in mid-25’, she said.

The current disinflationary process was an indication that the ECB’s monetary policy had so far ‘contributed significantly’, she said.

The stickiness of services inflation made it important to take a closer look at wages and unit profits as well as productivity, she said.

‘[W]e will continue to operate on the basis of the three criteria…, being particularly attentive to wages and the evolution of wages, which constitutes a large contributor to services, close attention to profits to make sure that unit profits actually absorb as much as possible the wage increases that will inevitably happen and we will also continue to very attentive to productivity, which is also something that we expect will improve in the course of ’24.’