Christine Lagarde (ECB president), assured Tuesday that the institution will go "as far" as necessary to ensure that inflation stays at 2% over the medium-term. Lagarde believes that the instrument to combat fragmentation in the euro zone markets will allow Lagarde to increase interest rates "as necessary".
The president of the entity, in her opening speech to the forum held by the ECB in Sintra (Portugal), confirmed the roadmap for European monetary policies. The European bank will increase interest rates by 25 basis point in July, and the public debt purchase program will be ended on Friday, July 1. A second rate increase will occur in September. The magnitude of this hike will depend on how inflation forecasts evolve.
According to the ECB, the supply shock caused by the Russian invasion of Ukraine could have a longer-lasting effect on the European economy than anticipated. The entity believes that although the problems in supply chains are "softening", it expects that prices for energy and raw materials will continue rising in the medium term. These projections show that the ECB will "gradually but decisively" act.
Lagarde stated that "we will continue the path to normalization and go so far as necessary in order to control inflation at 2%." The French stated that the ECB would not hesitate to intervene if inflation predictions worsened by Russia's possible gas cuts.
The president of the European Bank reiterated that monetary policy must be applied correctly in all countries within the eurozone as it is a necessary step towards normalization. The institution is currently developing a new instrument that will combat fragmentation in the common currency markets to achieve this. Lagarde stated that the mechanism must be "effective, proportionate, and provide sufficient guarantees to maintain the momentum of Member States towards a solid fiscal strategy."