Lagarde: Inflation Risks Remain To Upside And Have Intensified

Lagarde concludes her opening comments, pointing out that inflation is expected to remain above target for some time and risks remain to the upside, while growth risks are tilted to the downside:

• A prolongation of the war in Ukraine remains a significant downside risk to growth, especially if gas supply disruptions led to rationing of energy for households and firms. The war could dampen confidence and contribute to supply side constraints. A deceleration in global growth would also pose a risk to the euro area outlook. The risk to the inflation outlook remain to the upside and have intensified.
• Market interest rates have been volatile. Bank funding costs have increased in recent months which has fed into higher bank lending rates, particularly for households. The volume of lending to households remains strong but is expected to decline. Lending to firms has also been robust. Demand for loans to finance investment has declined. Money growth has continued to moderate.
• The latest BLS showed credit standards tightening in Q2. Banks expect to continue tightening credit standards in the third quarter.
• In summary, inflation is expected to remain above target for some time. The latest data indicates a slowdown in growth which clouds the outlook for the second half of the year and beyond. Supportive factors have cushioned the slowdown.