The ECB has closely monitored the key inputs shaping its rate path to bring down inflation and meet its targets. During a recent speech, Christine Lagarde, ECB president, suggested a strategy for achieving its inflation target.
The strategy emphasized the importance of a data-dependent approach and no trade-offs around the primary objective of price stability. The ECB’s strategy includes liquidity support, a data-dependent rate path, and continuous assessment of crucial inputs.
ECB’s Lagarde Unveils Three-Part Plan To Achieve Medium-Term Inflation Target
Christine Lagarde, President of the European Central Bank (ECB), has presented a three-part approach to promptly achieve the bank’s medium-term inflation target. The rate path will be determined by observing three main elements: the forecast of inflation, the underlying inflation dynamics, and the effectiveness of monetary policy transmission.
Additionally, the ECB is ready to provide liquidity assistance if necessary to guarantee the successful implementation of its monetary policy. Lagarde pointed out that the Eurozone had experienced an inflation spike because of the coronavirus-caused supply chain breakdowns and Russia’s incursion into Ukraine.
As energy costs decline and supply constraints become less of an issue, inflation will decrease in the coming year. Despite this, the actual inflation rate is still strong.
Consequently, the European Central Bank (ECB) must have a comprehensive plan to reach the goal of price steadiness. Lagarde explained the significance of basing decisions on data, a different response system, and no compromise in achieving price stability.
Additionally, she clarified that no compromise needs to be made between price stability and financial stability, and the ECB can provide liquidity support if required. To ascertain the rate trajectory ahead, the European Central Bank will stay vigilant on three factors: the inflation projection, the actual inflation rate, and the efficacy of fiscal policy.
According to the ECB president, incoming information, future inflation forecasts, and real-time indicators will all be considered when deciding on inflation. The European Central Bank (ECB) will consider inflation dynamics as a secondary source of evidence to verify its predictions.
The wage growth will be an essential factor in ascertaining which trend is causing an increase in domestic prices and, thus, weakening one of the significant contributors to underlying inflation.
ECB Vigilantly Tracks Credit Supply And Expenses
Europe’s apex bank is attentive to credit supply and expense data to track whether there is a further transmission acceleration. The bank is committed to ensuring that the procedure remains organized.
It is part of the method by which the restrictions on credit control excessive price increases and bring inflation back to the bank’s desired target. Meanwhile, Lagarde highlighted the importance of keeping the goal in mind and being resolute in attaining it in a rapidly changing world.