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Markets have still to understand ECB guidance, President Christine Lagarde says.
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European Central Bank President Christine Lagarde pushed back against expectations of a 20 basis-point rate hike in 2022, saying that markets have either failed to understand or believe the ECB's medium-term inflation projections.
At the press conference following the Governing Council's October meeting, Lagarde accepted there was a disconnect between the central bank's analysis of inflation dynamics and those of financial institutions, and said she would continue to make the case against raising rates over the forecast period until the message had got through.
"We have to ask ourselves where this disconnect lies in, and it's either a question of our forward guidance not being sufficiently clear so that it is understood, or it is a question of our inflation outlook not being believed by markets," she said, after the ECB left its major policy settings unchanged ahead of a crunch meeting in December. "We are convinced that our assessment and our projections at this point in time are correct.
"I think the art of repetition, and the determination of our conviction, should eventually come through."
Governing Council discussion had focused on "inflation, inflation, inflation," with price increases clearly a concern to European citizens, she said. The ECB's expectation that inflation will prove transitory remains intact, she said, though it will be higher for longer than previously expected.
Ahead of major decisions set for the December meeting on the future path of stimulus, the president expressed her preference for ending the ECB's Pandemic Emergency Purchase Programme in March 2022, but said there had been no discussion of what should come after it over the previous two days. Asset purchases will continue at a rate moderately lower than seen in the second and third quarters of this year, she affirmed, as the ECB continues to recalibrate, not taper, its QE operations.
Asked whether there will be a cliff edge or if new targeted longer-term lending operations might be announced, she stressed that a smooth transition was paramount, with a decision on TLTROs in December.
Overall, Lagarde said, risks to the euro area outlook remain broadly balanced. In light of recent inflation increases, Governing Council members are taking particularly close interest in wage developments in case of any second-round effects - although the presence of considerable labour slack suggests increases may not be widespread or pronounced.
Lagarde declined to read anything into signs of tightening from other central banks, saying that different economies require different monetary policy responses.
The ECB left its main interest rate settings unchanged Thursday and confirmed its current measures, noting that 'favourable financing conditions can be maintained with a moderately lower pace of net asset purchases' under PEPP than in Q2 or Q3. The Governing Council also confirmed its forward guidance on their likely future evolution, its purchases under the asset purchase programme (APP), its reinvestment policies and its longer-term refinancing operations.