Lagarde keeps up ECB rate suspense, favouring action over words
CHRISTINE Lagarde avoided giving an indication of whether the European Central Bank will raise or hold interest rates next week as she delivered a speech in London.
The president of the Frankfurt-based institution kept up suspense around one of the most uncertain decisions in its year-long battle against inflation, focusing instead on challenges in communicating at an uncertain time.
“Actions speak louder than words,” Lagarde said on Monday (Sep 4) at a seminar in London organised by the European Economics & Financial Centre. “We have increased our policy rates by a cumulative total of 425 basis points in the space of 12 months – a record pace in record time. And we will achieve a timely return of inflation to our 2 per cent medium-term target.”
ECB officials meeting Sept 14 must assess if a recent slowdown of the economy is sufficient to warrant a first pause in the relentless tightening cycle that began more than a year ago. At the previous meeting in July, Lagarde said the institution could hike or hold as it increasingly focuses on data to guide its action.
New eurozone inflation numbers released last week showed a closely-watched underlying measure slowed to 5.3 per cent in August from 5.5 per cent in the previous month. Officials are also seeing indications that the contraction in private-sector activity has intensified.
Money markets are placing around one-in-four odds on the ECB raising rates a quarter-point to 4 per cent next week. That compares with as much as a 60% chance before economic data showed core inflation in the euro area slowed.
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Lagarde and her colleagues are still waiting to weigh the ECB’s in-house economic forecasts, which are a key piece to the puzzle of rate decisions.
Some more hawkish policymakers have continued to push for another rate increase, though others acknowledge a more clouded picture.
Isabel Schnabel, the Executive Board member in charge of markets, said last week that while inflation is still high, growth prospects are worse than officials predicted in June.
Speaking earlier on Monday, Portugal’s Governing Council member Mario Centeno said there is a risk of raising interest rates too far as the economy adjusts to new financial conditions. BLOOMBERG
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