‘The lady's not for tapering’ - Lagarde

Paraphrasing the late British Prime Minister and monetarist Margaret Thatcher, in a phrase that she would be unlikely to have uttered, European Central Bank President Christine Lagarde announced today that ‘the lady is not for tapering’.

Based on a joint assessment of financing conditions and the inflation outlook, the central bank’s governing council has decided that net asset purchases under the pandemic emergency purchase programme (PEPP) can continue, but at a more moderate pace.  

The council also agreed to keep interest rates as they are, saying that they expect the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching two per cent, but allowing for a transitory period in which inflation may rise moderately above its target.

Inflation outlook

Lagarde acknowledged that people in many eurozone countries are experiencing price increases, but she said that when the bank “looks under the skin of inflation” their outlook leads them to believe that it will be 1.5% by the end of the projected horizon.

Lagarde highlighted the impact of energy prices, but also pointed to the price rises due to supply chain bottlenecks linked to the economy opening up again. The bank anticipates that this will be largely temporary in nature, but acknowledges that it could result in upside pressure on prices if it continues for longer than expected. 

On wages, Lagarde said that the ECB had not yet seen evidence of a significant increase in prices, but will be attentive to this as negotiations take place in the autumn. In any event, she expects wage growth to be moderate and gradual.

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