(Finance) – “We must be confident that monetary policy is passed on to the entire eurozone. We have to be sure there is no fragmentation. We have the existing tools, such as reinvestment under the PEPP program which will be used flexibly, but if necessary we will fix existing tools or use new tools. We are committed to the transmission of monetary policy and fragmentation will be avoided to the extent that it prevents the transmission of monetary policy. “The president of the European Central Bank said. Christine Lagardein the post-meeting press conference of the ECB, where Frankfurt decided to end net asset purchases under the APP program starting July 1, 2022 and to raise key interest rates by 25 basis points at the meeting of monetary policy in July.
“We know how to create and implement new tools, we have done it in the past and we are ready to do it again,” she added, responding to those who pressed her about the nature of these new tools. “There is no specific level of rates or spreads that can trigger fragmentation – he explained – But we will not tolerate the fragmentation that will prevent the transmission of monetary policy and we will decide on the basis of the circumstances when this risk will appear “.
In her speech, Lagarde said that “Russia’s unwarranted aggression against Ukraine is severely affecting the euro zone economy and prospects are still surrounded by high uncertainty. But the conditions exist for the economy to continue to grow and recover further in the medium term “.inflation is “undesirably high and should remain above our target for some time“he added, noting that” the calibration of our policies will remain data dependent and will reflect our evolving assessment of the outlook. “
Speaking of the decisions taken at today’s meeting, the ECB chief said the decisions have been made “unanimously“and underlined that Frankfurt has started today” a path, and this is clearly a step of this path “. Lagarde is back to talk about”a path“several times during the press conference, even when asked if a 50bp rate hike had been considered as early as July.” We’ve been out of many years of no-decision-making and are coming out of negative rates, so it’s good to start with a incremental rise – as do other central banks too – which is not excessive and which indicates a path – he said – What we are doing is not just a single step in July, but we are starting a path that will bring us back to the inflation target of 2% in the medium term “.
The ECB president pointed out that she does not expect the first hike in July to have an immediate effect on inflation and that it is still too early to identify a neutral rate. “We have decided not to discuss where the neutral rate is positioned – he explained – Furthermore, it is not something that we can observe today, but as we get closer we will be able to observe it better, and surely there will be discussions on this“.
Lagarde also reflected on the update of the estimates on GDP and inflation, acknowledging the errors of the Eurotower and talking about “wrong estimates resulting from truly unpredictable events“.” Our staff do their best and it should be emphasized that our prospects are not only of the ECB, but also of all central banks of the eurozone – he said – It is clear that the increases in energy prices, the war in Ukraine and the rebound of the economy have caught all the institutions making estimates by surprise“.