On Wednesday 20 March, the President of the European Central Bank (ECB), Christine Lagarde, reiterated that the ECB had moved into a ‘holding’ phase of the monetary policy cycle, following a phase characterised by ‘tightening’.
The President noted that significant progress had been made on the three criteria for the reaction function (apart from domestic inflation, which is resisting), but reiterated that the ECB was not yet sufficiently confident in the sustainability of the path towards the price stability target, and that data was still awaited on wages, profits and productivity. However, she stressed that the ECB could not wait until it had all the relevant information, at the risk of being too late in adjusting its policy.
The focus is on May (wage data), and especially June, with a series of macroeconomic data. The ECB will then have a longer window to assess, in particular, whether inflation is in line with projections, especially for more persistent components, such as services. “If these data reveal a sufficient degree of alignment between the path of underlying inflation and our projections, and assuming transmission remains strong, we will be able to move into the dialling back phase of our policy cycle and make policy less restrictive”, said Ms Lagarde.
Link to the speech: https://aeur.eu/f/bge (Original version in French by Émilie Vanderhulst)