The ECB Ready to Change Plans According to Future Risks

The European Central Bank (ECB) is ready to adjust its plans if necessary, taking into account future inflation risks. This was announced by the President of the Bank Christine Lagarde at a conference in Frankfurt.

“We are sure that in the medium-term inflation dynamics will not return to pre-pandemic levels, but we must manage the shock of accelerating inflation relative to the target in the short term and slowing economic growth,” Lagarde said.

She stated that the ECB would take all necessary measures to ensure financial stability. The measures may include new tools to ensure a safe shift of monetary policy. 

The ECB tries to protect the eurozone economy from the consequences of Russia’s invasion of Ukraine, as well as record inflation. Last week, investors were surprised by the bank’s decision to cancel the stimulus earlier and the flexibility it had given itself to raise interest rates.

Ruling board member Pablo Hernandez de Kos stated this week that the war in Ukraine would negatively affect the subsequent recovery of the pandemic. Bundesbank President Joachim Nagel says, that even if inflation accelerates and economic growth slows down, stagflation is not expected.

According to Lagarde, the Russian invasion “cast a shadow over Europe.” According to the President of the European Central Bank, fiscal policy can restrain the impact of war on the economy, though the inflationary impact will depend on the support of governments.

According to today’s OECD report, a targeted fiscal increase of 0.5% of GDP will help reduce the effects of the war, so that price pressures are avoided. War can slow global growth by more than 1 percent. According to an updated forecast of the ECB published last week, slow economic growth and faster inflation are expected in 2022.

According to eurozone inflation data released today, prices have risen slightly more than estimated in February. Compared to last year, inflation increased by 5.9%, mainly due to the higher energy costs.