European Central Bank President Christine Lagarde said today that inflation in the Eurozone would escalate and therefore the ECB should not tighten its policy, as it would then weaken the recovery, and said bond markets would continue next year. .
Eurozone inflation rose to 4.1% in October, driven by higher energy costs, and is expected to stay above the ECB ‘s 2% target next year as the supply chain is pushed by the pandemic and unable to meet needs. demand from the restart of economies.
Lagarde, however, insisted that the ECB should not brake now, but should continue to fuel the economic recovery.
“When inflation is expected to decline – in the current context – it does not make sense to react by tightening policy. “The tightening would affect the economy, since the shock would have passed,” he stressed.
The ECB is expected to decide on the future of its bond market programs – the pandemic emergency (PEPP) and the regular (APP) – at its meeting on 16 December.
Lagarde has said that PEPP, amounting to 1.85 trillion. euro, will end in March, but noted that bond markets will continue to be significant after that date.
“Even after the expected completion of the emergency pandemic program, it will continue to be important for monetary policy – including the proper regulation of bond markets – to support the recovery and sustainable return of inflation to our 2% target,” he said. .
The Bank of England is expected to raise interest rates more widely by the end of the year, while the US Federal Reserve is gradually withdrawing its bond-buying program. Lagarde, however, argued that the tightening of the policy would now squeeze the incomes of households, which are already facing a shock from the surge in energy costs that is likely to limit growth. “In this situation, tighter monetary policy would only strengthen the contractionary effect on the economy,” he added.
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