ECB’s Lagarde: Must Consider Impact of Exchange Rate Variations on Our Inflation

17 April 2024

By David Barwick – WASHINGTON (Econostream) – European Central Bank President Christine Lagarde on Thursday said that the ECB could not disregard the implications of foreign exchange fluctuations for inflation.

At a joint event of the Peterson Institute for International Economics and the Council on Foreign Relations, Lagarde was asked about the impact of forex movements on the ECB's monetary policy.

‘So, the scripted response that I should give you is the European Central Bank does not target the exchange rate’, she responded. ‘But obviously we look at it very carefully. And we monitor developments. And while we have a single mandate with a primary objective of price stability, obviously we have to take into account the impact that exchange rate variations will have on our inflation.’

‘And it’s obvious … that movement of currencies may have an impact on inflation by way of imported inflation’, she continued.

The ECB thus looked at exchange rate movements ‘carefully’ and incorporated them into its macroeconomic projections, she added.

Fiscal and monetary authorities had to be aware of each other’s actions and to draw conclusions from that, Lagarde said. However, the ECB in any event had a mandate to fulfil that it could not turn its back on, she said.

‘In terms of where we see Europe going forward, it is recovering, and we are clearly seeing signs of a recovery now – beginning, timid, and picking up in the course of 2024’, she said.