The President of the European Central Bank (ECB), Christine Lagarde, took part, on Monday 5 June in Brussels, in the second monetary policy dialogue of 2023 with members of the European Parliament’s Committee on Economic and Monetary Affairs (ECON). On the same day, she signed the agreement, resulting from exchanges of letters, voted by Parliament on Thursday 1 June (see EUROPE 13192/15), on ECB transparency and accountability practices.
The monetary policy dialogue focused on two issues: the interaction between price and financial stability, and the effects of high inflation and monetary tightening on the real economy.
In her introduction, Ms Lagarde called on EU legislators to preserve financial stability, make progress towards completing the Banking Union and strengthen regulation in order to improve the resilience of the euro area financial sector.
In one of her key monetary policy statements, the ECB President mentioned the strong possibility that the Governing Council would decide to stop all reinvestment and ‘run off’ the asset purchase portfolio.
Greening the ECB’s balance sheet
In response to a question from Henrike Hahn (Greens/EFA, German), Ms Lagarde also acknowledged that, in the event of the portfolio being liquidated, the ‘tilting’ mechanism aimed at redirecting investments towards environmentally efficient companies would no longer be effective.
The ECB should therefore reflect on how it can continue to implement its strategy to combat climate change.
Contributions to inflation
For Aurore Lalucq (S&D, French), the current rise in interest rates poses a risk to the management of public debt refinancing and to financial stability. She added that inflation was driven by corporate margins and that, against imported inflation in a period of low consumption and low growth, she did not see how an interest rate could “solve anything”.
Christine Lagarde replied that the ECB, and Philip Lane in particular, had been saying since September that the fiscal authorities had to use the fiscal weapon in the fight against inflation. She pointed out that, since 2022, certain sectors - transport, agriculture, catering and construction - had effectively passed on to consumers the higher costs they were incurring and maintained their margins. In her view, this phenomenon has been less evident since the beginning of 2023, but was very present in 2022.
“It is important that the competition authorities look at these sectors”, Ms Lagarde replied later to René Repasi (S&D, German).
The former head of the IMF added that the ECB, “in a balanced way”, had considered it important for the social partners to be able to hold a concerted dialogue to avoid both parties wanting to recover what had been lost through imported inflation. Otherwise, she added, the ECB would have to initiate additional monetary tightening measures.
Interest on bank reserves
Asked about the interest on bank reserves, Christine Lagarde stressed that the ECB, by raising its main key rates, was concentrating on its price stability mandate and not on bank profits.
On the other hand, the institution is observing a transmission of its monetary policy on both loans and deposits. But “we are not seeing enough of that in relation to deposits”, stressed the president. She also pointed out that ECB Vice-President Luis de Guindos had said that he was concerned about excess liquidity (see EUROPE 13188/14), and that this excess liquidity was being reabsorbed in particular by reducing the ECB’s balance sheet and repaying the loans obtained under the ‘TLTRO III’ programme. (Original version in French by Émilie Vanderhulst)