ECB, Lagarde: price stability is essential for green transition

ECB Lagarde appropriate interest rate cut with inflation towards 2

(Finance) – “The world never stops and the Central banks are constantly facing new shocks, new risks and changes in the economic context – be it government policy reversals, tensions in the financial sector or disruptions to global trade. In most cases, we simply need to take the environment as a given and adapt our policy accordingly.” Christine Lagardepresident of the European Central Bank (ECB), during an event in Paris.

According to Lagarde, “there are four factors that make risks related to climate and nature a unique challenge for central banks – a challenge that requires a different type of response”. He cited the fact that they represent a new type of systemic risk; the irreversibility of their impacts; the impacts of climate- and nature-related risks will spread throughout the economy, influencing the tasks of central banks; these risks are also unique in that, unlike, for example, geopolitical risks, central banks can help mitigate them.

Speaking about what the ECB is doing, he said: “First of all, let’s maintain the price stability, essential for the transition to a low-emission, circular economy of carbon”.

“The green transition requires substantial investment and a stable inflation outlook offers companies one greater visibility on investment costswhich is particularly important for green projects given their long-term planning horizons,” he argued. “Moreover, price stability supports relative price signals from policies such as carbon pricing, improving their efficiency.”

“Risks related to climate and nature are unique and will continue to increase, and their importance will only increase over time – said Lagarde – Therefore, within the scope of our mandate, the ECB will continue to analyze climate risksto provide advice to interested parties and, above all, to take action”.