FRANKFURT – The European Central Financial institution must maintain financial coverage unfastened and not overreact to short-term worth spikes to be able to guarantee inflation returns to its target, ECB President Christine Lagarde said Tuesday.
Opening a two-day conference on monetary coverage after the top of the pandemic, Lagarde highlighted the atypical nature of the restoration, which calls on policymakers to concentrate on steering the financial system safely out of the crisis.
“The important thing challenge is to make sure that we do not overreact to transitory supply shocks that haven't any bearing on the medium term, while additionally nurturing the constructive demand forces that would durably carry inflation in the direction of our 2 % inflation goal,” Lagarde stated.
Noting that current worth hikes are primarily stemming from transitory elements linked to the reopening of the financial system, Lagarde stated that “we nonetheless need an accommodative financial coverage stance to exit the pandemic safely and convey inflation sustainably back to 2 %.”
Even wanting beyond the pandemic, the ECB expects inflation to solely slowly converge towards that focus on, she pointed out.
Nevertheless, Lagarde stated she additionally acknowledged that the pandemic has launched elements that would have an effect on inflation dynamics in the years to return, which might produce each upward and downward worth pressures.