Filenews 22 March 2022 - by TheanoThiopoulou
The adjustment of the key ECB interest rates will take place "shortly after" the end of the bond market, ECB President Christine Lagarde said in a speech on "monetary policy in an uncertain world", at the "The ECB and Its Watchers XXII" conference in Frankfurt.
It should be noted that next week, on 29 and 30 March, the central banker of the ECB will be on an official visit to Cyprus and is expected to have meetings with the President of the Republic Nicos Anastasiades, the Minister of Finance Konstantinos Petrides and of course the Governor of the Central Bank Konstantinos Herodotou, who has also invited her to Cyprus.
Adjustments
In her speech, Ms. Lagarde said that the time to change interest rate policy retains "our traditional sequencing logic, but it also gives us extra space, if necessary, after we stop buying bonds to take the next step towards normalization. This will allow us to check whether the convergence of inflation towards the target we are currently forecasting is resilient to existing and potential new shocks."
The ECB president also outlined the monetary policy, stating "we have made it clear that future interest rate adjustments, when they come, will be gradual".
Prospects and dependence
In her speech, Ms Lagarde said that "the latest key ECB staff forecasts - which include a first assessment of the effects of the war - see inflation, on average, at 5.1% this year. In another scenario of our staff, inflation could exceed 7% in 2022."
The outbreak of war, she said in her speech, has introduced new uncertainty into the outlook. In particular, the short-term factors that drive inflation are likely to strengthen. "Energy prices are expected to remain higher for longer, with gas prices rising by 73% since the start of the year and oil by 44%. Russia and Ukraine account for almost 30% of global wheat exports, and wheat prices have been up by more than 30% since the start of the year. Belarus and Russia produce about a third of the world's potash, a key ingredient, along with natural gas, to produce fertilizers, which was already in short supply."
The President of the ECB's Board of Directors pointed out that "Russia is the world's leading exporter of palladium, which is a key element in the production of catalysts and is difficult to replace by other suppliers. Ukraine supplies about 70% of the world's neon gas, which is critical for the laser lithography process, used in semiconductor manufacturing. The Eurozone is heavily dependent on Russia for cobalt and vanadium, which are essential for the three-dimensional printing, and the drone and robotics industries."
We need to manage a shock that reduces growth
Ms Lagarde noted in her speech that, when the ECB's Governing Council met last week, she concluded that the challenges facing monetary policy are changing. We agreed she added that "we needed a policy framework adapted to the current environment of increased uncertainty and the new challenges it presents. To this end, we have decided that our policy should be guided by three principles: optional, gradual and flexible."
She concluded that "monetary policy today faces a new challenge. We are increasingly confident that the dynamics of inflation over the medium term will not return to the pattern we saw before the pandemic. But we have to manage a shock that, in the short term, pushes inflation above our target and reduces growth." Ms. Lagarde characteristically mentioned that "our perspective today can be summed up in the words of Maya Angelou: "We hope for the best, we are prepared for the worst and we are not surprised by anything in between."
