Lagarde: Growth Risks To Downside; Credit Dynamics Have Weakened Further

Lagarde goes through the risks to the outlook, suggesting that growth risks lie to the downside, with weaker demand creating potential for lower price pressures:

• Risks to growth are tilted to the downside. This could result from weaker global growth or more forceful monetary policy. Growth could be stronger if the robust labour market, receding uncertainty and rising income fuels household and business spending.
• Upside risks to inflation come from renewed higher costs for food and energy. The climate crisis could push food prices up by more than expected. A lasting rise in inflation expectations above target, or higher than anticipated wage increases or profit margins, could drive inflation higher. Conversely, weaker demand would lead to lower price pressures, especially over the medium term.
• Funding has become more expensive for banks. Overnight deposits are being replaced by time deposits. The ECB's TLTROs are being phased out. Average lending rates for mortgage and business loans continued to increase in July. Credit dynamics have weakened further. Loans to firms and households has slowed.
• (MNI notes: the part about TLTROs is not new. However, the part about consumers switching for sight to time deposits to receive higher returns is new.)