ECB can ‘find answers’ to patchy euro zone recovery – Lagarde

Economic rebound is ‘uncertain and uneven’ but ECB has ‘not fired its last cartridges’

European Central Bank president Christine Lagarde speaking on screen during a meeting of the Franco-German Parliamentary Assembly. Photograph: John MacDougall/AFP

European Central Bank president Christine Lagarde speaking on screen during a meeting of the Franco-German Parliamentary Assembly. Photograph: John MacDougall/AFP

 

Europe’s economic rebound is uncertain and uneven, requiring “very careful” assessment of incoming data, including the evolution of the coronavirus pandemic, European Central Bank president Christine Lagarde said on Monday.

“The uncertainty of the current environment requires a very careful assessment of the incoming information, including developments in the exchange rate,” Ms Lagarde said in a speech to the Franco-German Parliamentary Assembly.

“The strength of the recovery remains very uncertain, as well as uneven and incomplete,” she said. “It continues to be highly dependent on the future evolution of the pandemic and the success of containment policies.”

The remarks come as economists expect the ECB to expand its emergency €1.35 trillion bond-buying programme this year to bolster the rebound and revive inflation.

Earlier on Monday, Germany’s Bundesbank said it expected the recovery in Europe’s largest economy to continue at a slower pace during the rest of the year. ECB policy makers have in recent days sought to stress their readiness to support the euro zone, a call Lagarde echoed in her latest comments.

“Has the ECB fired its last cartridges? No, not at all, not at all,” she said. “We can find answers to help economies.”

Inflation target

Fielding questions on issues including climate change, digital euro and debt cancellation, Ms Lagarde said the ECB’s stimulus “stabilised markets, protected the supply of credit and supported the recovery”, which should help bring inflation back to its target of just under 2 per cent.

The ECB has a long way to go to lift inflation. Consumer prices fell 0.2 per cent in August from a year earlier, and the central bank sees the rate averaging just 1 per cent next year and 1.3 per cent in 2022.

The euro’s recent appreciation to the strongest level in more than two years has emerged as a factor weighing on inflation. ECB vice-president Luis de Guindos said in an interview on Sunday that while the institution is monitoring the currency, “it would be suicidal to enter into any sort of dispute about exchange rates”.

Ms Lagarde repeated that the central bank is not targeting the euro’s level, but its appreciation is an issue for policy.

“So we are of course playing very close attention to this strengthening of the euro,” she said. “We take it into account in the determination of our monetary policy and it’s via prices of course, via inflation, that we take it into account to define this monetary policy.”