In Sintra (Portugal) on Monday, 29 June, President of the European Central Bank (ECB) Christine Lagarde confirmed that the euro area’s monetary policy had “gone back to basics” but asserted that the new geopolitical environment required new analysis and decision-making methods. At the opening of the annual ECB Forum on Central Banking, Ms Lagarde stated her belief that central bank policy rates had once again become the main tool for fighting inflation—with adjustments decided [on a] meeting-by-meeting [basis].
According to the president, the resilience that the European economy has gained since the sovereign debt crisis, the Covid-19 pandemic, and the surge in energy prices has gradually reduced recourse to unconventional monetary instruments.
Nevertheless, the most recent geopolitical shocks—which have been more frequent and more unpredictable—have, according to Ms Lagarde, rendered taking an in-depth look at economic data and making greater use of scenario analysis essential to calibrating the Frankfurt institution’s decisions.
“In times of uncertainty, forward guidance loses its value. But framework guidance becomes more valuable,” she stated.
Furthermore, the president defended the approach taken during the Governing Council’s last meeting—once again rejecting the idea that the recent rate increase was simply an “insurance hike” (see EUROPE 13886/6). (Original version in French by Bernard Denuit)