the increase in rates as long as necessary – Corriere.it

The assessment of the president of the ECB, Christine Lagarde, on the European financial situation does not change: the medium-term objective is to bring inflation back to 2%. “We are fully committed to fighting inflation and are determined to achieve its timely return to our medium-term objective of 2%”, explained Lagarde, speaking at the Economic Committee of the European Parliament. “Our future decisions will ensure that policy rates will be brought to levels restrictive enough to achieve a timely return of inflation to our medium-term target of 2% and will be maintained at those levels for as long as necessary”. “Our rate hikes – she added – are forcefully being transmitted to the financing conditions of businesses and households, as can be seen from the increase in loan rates and the decline in loan volumes. At the same time, the full effects of our monetary policy measures are starting to materialize,” she added.

Inflationary pressures “remain high”

“The latest available data suggest that indicators of underlying inflationary pressures remain elevated and, while some are showing signs of moderation, there is no clear evidence that underlying inflation has peaked,” she said. «Pressures on wages – she explained – have further strengthened as employees recover part of the purchasing power lost due to high inflation. And in some sectors, firms have been able to increase profit margins thanks to imbalances between supply and demand and the uncertainty created by high and volatile inflation.

Stop the measures against the energy crisis

The ECB president explained that government support measures to deal with the effects of the energy crisis must be withdrawn and it is a process that must be started “now” to avoid increasing inflationary pressures in the medium term. Were these to rise, a “stronger” monetary policy response would be needed, added Lagarde. In essence, governments must do their part to maintain consistency between budgetary policies (which include support for the effects of the energy crisis) and monetary policy. The number one of Eurotower hoped that “a spiral of reciprocal retaliation will not be reached, raising wages after the increase in margins”. The governments of the Eurozone, you underlined, “can intervene in the dialogue between the social partners”, a task that “does not belong” to the ECB. “If we were to find ourselves in this situation” of mutual retaliation, “we would have to adopt much more important restrictive measures” than those adopted so far, she warned. During the hearing in the European Parliament, the president of the European Central Bank recalled that «the exposure of banks in the euro area to the recent stress on the banking sector that occurred in other regions has been limited. But challenges to funding and asset quality can weigh on future profitability. More generally, as financing conditions tighten, we will gain more insight into the resilience of euro area firms, households and banks.