Tough call: Lagarde (right) and Irene Tinagli, chairwoman of the Committee on Economic and Monetary Affairs, at the meeting. The ECB president says the bank's record high deposit rate could help cut inflation to 2%, repeating its guidance that neither promises nor rules out further rate hikes. — AFP
FRANKFURT: The European Central Bank’s (ECB) record-high deposit rate could help cut inflation to 2%, ECB president Christine Lagarde says, repeating the bank’s guidance that neither promises nor rules out further rate hikes.
Policymakers have provided different interpretations of this guidance over the past week, with one extreme arguing that the next move is likely to be a rate cut, while the other side said that the chance of another hike could be close to 50%.
“We consider that our policy rates have reached levels that, if maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to our target,” Lagarde said.
But Lagarde highlighted some modest softening in an otherwise resilient labour market, which is set to help disinflation after rapid nominal wage growth kept pressure on prices.
“The labour market is finally adjusting and will probably take a little bit more time to adjust,” she told the European Parliament’s Committee on Economic and Monetary Affairs. “Job creation in the services sector is moderating, and overall momentum is slowing.”
Markets see no further rate hikes on the premise that concerns over an economic slowdown will become a bigger worry than inflation. Investors also see a small chance of a rate cut by next June and a cut almost fully priced in by July.
“Recent indicators point to further weakness in the third quarter,” Lagarde added.
Speaking about an ongoing review of the ECB’s operational framework for steering short-term interest, Lagarde said that the conclusion of the exercise would be delayed until next spring from the end of this year.
The ECB launched the review last December, partly to reduce the €3.7 trillion of excess liquidity sloshing around in the bank sector, but disagreements over a host of technical issues already pointed to a delay. — Reuters
