Lagarde does not see that core inflation has peaked and will continue to raise rates

The tightening of financing conditions does not affect the vacation plans of citizens for the moment

MADRID, 1 Jun. (EUROPA PRESS) -

The president of the European Central Bank (ECB), Christine Lagarde, has assured that the institution will continue to raise interest rates to return inflation to the 2% target, considering that there is no clear evidence that the underlying rate has hit a ceiling, although he has recognized the importance of "carefully assessing" the transmission force of monetary policy to financial conditions and the economy.

"There is no clear evidence that core inflation has peaked," the Frenchwoman warned at a conference in Frankfurt, after Eurostat announced that eurozone inflation eased in May to 6.1% from 7%. , at its lowest in February 2022, while the underlying rate slowed for the second consecutive month, to 5.3%, compared to 5.6% the previous month.

In this way, Lagarde has affirmed that the ECB must continue with the rate hike cycle until it is sufficiently sure that inflation is on track to return to the target in a timely manner.

"Today, inflation is too high and is destined to stay that way for too long. We are determined to bring it down to our 2% target in a timely manner," he assured, reiterating that there is still "ground to cover" to bring rates down. sufficiently restrictive levels.

However, the central banker of the eurozone has pointed out that the rate hikes are already being reflected "strongly" in the conditions of bank loans and anticipates that, after the scope and speed of the rise in the price of money, " a considerable adjustment is still being prepared", although uncertain.

"We know that our rate hikes have not yet been fully reflected in financing conditions. And we are also aware that the recent tensions in financial markets may have intensified tightening by increasing financing costs for banks and encouraging further risk aversion," he warned.

In this way, the French company has pointed out the importance of carefully monitoring how the monetary policy transmission process develops and whether the recent financial tensions leave a lasting mark on the markets that would have to be taken into account in the maximum level to be reached. for the rates.

Likewise, he has also emphasized the uncertainty about how these tighter financial conditions will affect the economy, after companies have not faced a sharp increase in financing costs for more than a decade, while the economy has changed considerably in that time.

"This means that we need to closely watch the impact of our measures over time," the Frenchwoman said, adding that some early signs of the effects may already be being seen across sectors.

In this sense, although it is likely that spending on durable goods will be more affected by higher financing costs, since some of these are generally carried out on credit, Lagarde has highlighted that, at least during this summer, surveys of consumers show that a tighter monetary policy will not affect citizens' vacation plans.

"We are approaching our cruising altitude, and that means that we must ascend more gradually, using the speed that we have already accumulated behind us," Lagarde explained, referring to the decision to moderate the intensity to a quarter of a point. rate hikes at the last meeting.