The European Central Bank will only consider using its balance sheet to reduce monetary stimulus once monetary policy has become normalised, bank president Christine Lagarde said Monday, noting that interest rates would remain the tool of choice for policymakers.
Lagarde's remarks to the European Parliament's ECON session confirm MNI's report last week that quantitate tightening is unlikely to become a topic of active debate within the Council before next year (see MNI SOURCES: ECB's Focus Shifts To Interest On Reserves).
Asked by legislators whether recent losses suffered by the Belgian central bank as a result of rising interest rates constitute a potentially more widespread and serious problem, perhaps tied to remunerations paid on reserves held by commercial banks, Lagarde replied that “national central banks that are part of the euro system do not have as a purpose to generate profit. Their purpose [...] is price stability. [...] It does have consequences, but the decisions we made and that we will continue making will be riveted to that compass, which is price stability.” (MNI INTERVIEW: ECB To Limit Reserve Remuneration -Papadia)