The European Central Bank (ECB) must not rush to tighten its monetary policy since the elevated inflation rates look transitory, the bank’s President, Christine Lagarde, told the Frankfurt European Banking Congress.
Speaking through a video link on Friday, Lagarde stressed that the ECB’s monetary policy should be kept consistent to facilitate the return of inflation to the two per cent target over the medium term when interest rates remain low.
“In particular, we must not rush into a premature tightening (of monetary policy) when faced with passing or supply-driven inflation shocks,” she said.
In an apparent bid to assuage concerns about a delayed response to hiking prices, Lagarde said the central bank is taking the surging inflation rates seriously, Xinhua news agency reported.
The inflation rates in the eurozone have increased markedly for the three months through October. In October, annual inflation surged to 4.1 per cent after hitting a 13-year high of 3.4 per cent in September.
The inflation spike has fueled worries that the stubbornly persistent high rates could stymie recovery from pandemic-induced recession. Accordingly, the central banks of several major economies have moved to wind down their asset purchase programs and raise interest rates to rein in inflation.
The ECB has been consistent in its evaluation of the inflation prospects in the eurozone.
“This inflation is unwelcome and painful — and there are naturally concerns about how long it will last,” Lagarde added.
She reiterated that the inflation drivers are likely to “fade over the medium term.”
She rejected the idea of tightening and warned that it would only make the “squeeze on household incomes worse” and would fail to address the root causes of inflation.