The president of the European Central Bank (ECB), Christine Lagarde, insisted, in the European Parliament, that the conditions for raising interest rates will not be met in 2022, despite the fact that inflation will fall more slowly than expected and even, could remain high if energy prices continue to rise and supply chain problems “persist”.
“If we adopted a more restricted approach, it would do more harm than good,” the Frenchwoman stressed in an appearance before the European Parliament’s Economic and Monetary Affairs committee in which she indicated that the conditions that the institute will not meet next year issuer has been flagged to start raising rates.
“Despite rising inflation, the outlook for inflation in the medium term remains weak and it is highly unlikely that these three conditions will be met next year,” said the president of the ECB.
The analysis of the European monetary institution, she explained, continues to predict that the price level will fall below the new “symmetric” objective of 2 % in the medium term and that explains why the ECB chooses to continue with its current monetary policy.
Lagarde has pointed out that the increase in inflation is explained by three factors: energy prices, the increase in demand that accompanies the recovery and the withdrawal of reduced VAT in Germany, which will disappear “mechanically” in January 2022.
In any case, the president of the ECB has admitted that inflation could continue at high levels if energy prices, which account for half of the price increase, continue to grow and the ‘bottlenecks’ persist in the chain of supply.
“This could lead to higher wages and consequently higher prices. But so far, we see no evidence of this in the negotiated wage data. We see that wage growth next year will be higher than this, but the risk of side effects remains,” she said.
With regard to the pandemic emergency program Lagarde admits that an “undue” tightening of the financing conditions “would not be desirable” and would represent an “unjustifiable headwind for recovery.”