Lagarde comments at ECB press conference
(C) Reuters. FILE PHOTO: European Central Bank (ECB) President Christine Lagarde in Frankfurt, Germany, March 12, 2020. REUTERS/Kai Pfaffenbach/File Photo/File Photo/File Photo
FRANKFURT, July 22 (Reuters) – The European Central Bankpledged on Thursday to keep interest rates at record lows foreven longer to help sluggish inflation in the euro zone riseback to its elusive 2% target.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
“We are still in that period of crisis which is why PEPP is still ongoing. We believe that any particular exit would be absolutely premature in that respect but our goal is to come back to that pre-pandemic moment and the inflation target as we had it at the time.”
MORE ON DELTA VARIANT
“All the elements we are observing at the moment… are confirming our projection for the second quarter which is coming strongly and for the third quarter.
“We are in the hands of those who are going to take all the necessary precaution to make sure that that contagion is not producing the negative economic effects that we have seen in the past.”
“Vaccination is clearly one of the components that we look at carefully, the second consideration that we debated around the table because it varied from one country to the other is the fact that over the course of those waves, first, second, third and now fourth wave, citizens, governments and health services are getting a bit more used to the responses that must be given.”
IMPACT OF DELTA VARIANT ON ECB PROJECTIONS
“Our projection from June actually included some assumption that certain containment and lockdown measures would be continued into the third quarter and some of it still remaining during the fourth quarter of 2021.
“So it is factored into our projection, and all the elements that we are observing are confirming our projection of the second quarter and for the third quarter.”
REACHING 2% TARGET
“Summing up, the euro area economy is rebounding strongly. But the outlook continues to depend on the cause of the pandemic and progress with vaccinations. The current rise in inflation is expected to be largely temporary underlying price pressures will likely increase gradually. Although leaving inflation over the medium term, still well below our target.
“Our policy measures, including our revised forward guidance will help the economy shift to solid recovery, and ultimately bring our inflation to our 2% target.”
“We did not have unanimity but we had an overwhelming majority about the calibration of the forward guidance on ECB interest rates.”
MANUFACTURING, SERVICES AND DELTA
“We expect manufacturing to perform strongly even though supply bottlenecks are holding back production in the near term.
“The reopening of large parts of the economy is supporting a vigorous bounceback in the services sector, but the Delta variant of the coronavirus could dampen this recovery in services especially.”
PRICE PRESSURES SUBDUED
“In the near term, the significant slack in the economy is holding back underlying inflationary pressures. Stronger demand and temporary cost pressures in the supply chain put some upward pressure on prices but weak wage growth and the past appreciation of the euro mean that price pressures will likely remain subdued for some time.
“There is some way to go before the fallout of the pandemic on inflation is eliminated.”
PRESERVING FAVOURABLE FINANCIAL CONDITIONS
“The recovery in the euro area economy is on track. More and more people are getting vaccinated and lockdown restrictions have been eased in most euro area countries. But the pandemic continues to cast a shadow, especially as a growing source of uncertainty. Inflation has picked up. Although this increase is expected to be mostly temporary. The outlook for inflation over the medium term remains subdued. We need to preserve favourable financing conditions for all sectors of the economy over the pandemic period. This is essential for the current rebound to turn into a lasting expansion, and to offset the negative impact of the pandemic on inflation.”
“As the economy recovers, supported by our monetary policy measures, we expect inflation to rise over the medium term although remaining below our target.”
RECOVERY SUPPORTS INVESTMENT
“The ongoing recovery in domestic and global demand is boosting optimism among businesses this supports investment. For the first time since the start of the pandemic our bank lending survey indicates that funding of fixed investment is an important factor driving the demand for loans to firms.”
STRONG GROWTH IN Q3
“The economy rebounded in the second quarter of the year and as restrictions eased is on track for strong growth in the third quarter.”
“The outlook for inflation over the medium term remains subdued.”
(Reuters Global Newsdesk)
Lagarde comments at ECB press conference