Christine Lagarde rejects calls for ECB to act faster on inflation

Christine Lagarde has rejected calls for the European Central Bank to raise interest rates more quickly than planned in response to record inflation, saying it had "every reason not to act as quickly or as ruthlessly" as the US Federal Reserve.

The ECB president warned that raising interest rates too soon risked “putting the brakes on growth” and she told France Inter radio on Thursday that she wanted its monetary policy to act as “a shock absorber” instead.

Soaring energy and food prices lifted inflation in the euro zone to a record high of 5 per cent in December, well above the ECB’s 2 per cent target, prompting calls for a faster withdrawal of its generous stimulus policies. Ms Lagarde, however, predicted that inflation in the bloc would stabilise and “gradually fall” back below its target by the end of this year.

Irish inflation is running at 5.5 per cent, the highest level recorded in two decades.

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The Fed and the Bank of England are expected to raise interest rates several times this year after stopping their asset purchases. But the ECB in December said it was “very unlikely” to raise rates this year and outlined plans to continue buying large amounts of bonds for most of 2022.

“The cycle of economic recovery in the US is ahead of that in Europe,” Ms Lagarde said. “So we have every reason not to act as quickly or as ruthlessly as one might imagine with the Fed.”

Growing divisions

Behind Ms Lagarde’s confident stance there are growing divisions within the ECB’s governing council, which came to the fore of its last rate-setting meeting in December over the key questions of how fast price pressures would fade and whether it should withdraw its stimulus more quickly.

While council members agreed that “substantial monetary support was still needed” for inflation to stabilise at its target in the next three years, some of them warned that a “higher for longer” inflation scenario “could not be ruled out”, according to minutes of the meeting published on Thursday. – Copyright The Financial Times Limited 2022