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Lagarde Warns of 'Undesirably High' Inflation in Sintra Speech

Economy Jun 28, 2022 05:00AM ET
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© Reuters

By Scott Kanowsky 

Investing.com -- European Central Bank President Christine Lagarde has warned that inflation in the eurozone is "undesirably high", as she pledged to get a handle on price rises in the currency bloc while still preventing bond market fragmentation.

Speaking at a closely-watched speech at an ECB meeting in Sintra, Portugal, Lagarde said the central bank will go "as far as necessary" to bring inflation back down to its 2% target.

She added that the ECB will normalize its policy gradually, but with the caveat that it will "act decisively" should the outlook for price growth deteriorate in the medium-term.

"[T]his is why we have emphasized all along that flexibility is integral to the process of normalizing our monetary policy," Lagarde said. "It is essential to allow us to deliver the necessary policy stance and protect price stability in an environment where inflation is too high."

Lagarde reiterated the ECB's plan to raise key interest rates by 25 basis points at its next policy meeting in July, along with further hikes in September. However, she did not specify the exact size of that jump in borrowing costs, saying only that a "larger increment will be appropriate" if the inflation outlook remains the same or worsens.

She also did not provide any further details about a new "instrument" the ECB has planned to prevent so-called fragmentation, or a widening of the gap in bond market yields between more stable countries like Germany and weaker peripheral nations. The central bank first unveiled this proposal on June 15, when policymakers held an emergency meeting after Italian and Spanish bonds surged to eight-year highs following an ECB decision to stop a massive pandemic-era bond-buying program and begin ratcheting up rates.

Lagarde added this tool must be proportionate and contain "sufficient safeguards to preserve the impetus of Member States towards a sound fiscal policy". She also defended the instrument as a necessary mechanism that will allow the ECB to adopt a policy stance that will rein in rising prices.

The yield of  Germany's 10-year bond - often seen as a key marker for euro zone borrowing costs - was higher by 0.06 percentage points at 1.5995% following Lagarde's speech, while its Italian counterpart edged up to 3.646%. Bond yields typically run counter to prices.

 
 
 
Lagarde Warns of 'Undesirably High' Inflation in Sintra Speech
 

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Comments (10)
taylor jason
taylor jason Jun 28, 2022 7:43AM ET
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ECB is on the verge of collapse. the Germans will eventually leave than that will be all she wrote for the bloc. unless Italy, Portugal, Spain and Greece actually start making money
HelliumStar ..
HelliumStar .. Jun 28, 2022 6:38AM ET
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How serious is she? Is there the capability and strength to get involved with the horns of a bull?
Kerry Ditto
Kerry Ditto Jun 28, 2022 6:15AM ET
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global inflation is the problem. for example used car prices are skyrocketing. how low and middle wealth families can survive this inflation pandemic? it is worse than covid 19 pandemic.
Ricardo Diogo
Rcd72 Jun 28, 2022 6:13AM ET
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took one year to see it? puppet of the speculative funds...financed by the lunatic liquidity
la popeye
la popeye Jun 28, 2022 6:09AM ET
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the wall
David Beckham
David Beckham Jun 28, 2022 5:54AM ET
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I’m sure 0.25 is high enough to bring down the inflation nice job
Tiberius Augustus
Tiberius Augustus Jun 28, 2022 5:54AM ET
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Why listen to her , she has been wrong all the time
Jagaron chakma
Jagaron chakma Jun 28, 2022 5:44AM ET
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Jagaron chakma
Jagaron chakma Jun 28, 2022 5:44AM ET
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Chris Johnson
Chris Johnson Jun 28, 2022 5:34AM ET
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Not allowed commenting with a negative tone apparently
Chris Johnson
Chris Johnson Jun 28, 2022 5:34AM ET
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Haha... The word not allowed is d i l u t i o n al
Jeff Chevalier
Jeff Chevalier Jun 28, 2022 5:34AM ET
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Crazy. You can't say your word, but you can spam the comments with B. S. about crypto and imaginary financial geniuses that made me 30k in 8 minutes!
Chris Johnson
Chris Johnson Jun 28, 2022 5:34AM ET
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Calling her delusional
Chris Johnson
Chris Johnson Jun 28, 2022 5:33AM ET
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As if 25 bps will do anything to fight inflation soon to be double digits... She's delusional
 
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