BIX ARTICLE
Eurozone drifting from central bank’s baseline
Apr 16, 2026
|
5 min read
Featured Posts
Social Bonds Illustrative Use-Of-Proceeds Case Studies Coronavirus
Jul 06, 2020
|
2 min read
Sustainable Banking Network (SBN) Creating Green Bond Markets
Jul 06, 2020
|
2 min read
Why is Inflation Making a Big Comeback After Being Absent for Decades in the U.S.?
Mar 24, 2022
|
7 min read
SC issues Corporate Governance Strategic Priorities 2021-2023
Mar 29, 2022
|
3 min read
Monetary policy: Lagarde (left) speaks during an interview in Washington. The president of the ECB says the eurozone economy is somewhere between the European Central Bank’s base case from the war in Iran and a less rosy outcome. — Bloomberg
BRUSSELS: President Christine Lagarde says higher energy costs have pushed the eurozone away from the European Central Bank’s (ECB) base-case outlook, though not enough yet to warrant leaning towards raising interest rates.
“We are in between the baseline and the adverse” scenarios for the Iran war, Lagarde told Bloomberg Television on Tuesday in Washington, where she’s attending the International Monetary Fund (IMF) spring meetings.
Asked whether that means the ECB now has a bias towards tightening monetary policy, she said it doesn’t. “We have a compass which indicates price stability predicated on financial stability,” Lagarde said.
The ECB is weighing what action is needed following 6½ weeks of fighting in the Middle East that’s sent oil prices soaring and bruised economic sentiment.
Headline inflation in Europe has already jumped well beyond the 2% target. The key question is how persistent the spike will prove.
Markets reckon rate hikes are only a matter of time. But with the fate of peace talks between the United States and Iran up in the air, they don’t foresee an increase at the next meeting on April 29 and 30.
Traders are betting on two full quarter-point hikes this year, with about a 30% chance of a third, compared with wagers on as many as four such increases a week ago.
German two-year yields, which are sensitive to policy changes, fell as much as 11 basis points to 2.54%.
“We have to be completely agile and ready to move in the direction that is required,” Lagarde said. “We have to be data dependent, as we have repeatedly said, but it does not predicate as we speak today that we will go in one direction or the other.
“And it certainly doesn’t determine a rate path that I can confirm today.”
New IMF projections published on Tuesday may add some clarity, suggesting faster global inflation alongside more meager growth.
In the 21-nation eurozone, consumer prices are seen rising 2.6% this year, matching the ECB’s own forecast.
Several officials from the Frankfurt-based central bank deem that baseline outcome less likely as the conflict drags on and the closure of the Strait of Hormuz worsens.
That would bring closer the adverse scenario envisaging inflation peaking at 4.2%. Should the situation deteriorate further still, a severe scenario includes a short recession and price gains topping 6%.
For now, officials are watching how strongly higher energy costs feed through to other parts of the economy, keeping a particular eye on things like wage demands, which rose dramatically after inflation exceeded 10% in the wake of Russia’s attack on Ukraine in 2022.
“We’ve said very clearly that we would need data to act, but that we would not hesitate to act,” Lagarde said.
“It really captures well the position that we have. We need the data in order to analyse whether it’s a see-through, it’s going to be short-lived, we will get back to the past, if you will. Although I don’t think that’s actually possible.”
Speaking later in the day at the Bretton Woods Committee in Washington, Lagarde struck a similar tone.
“What we need to do on the basis of current circumstances is assess the data, determine the actual nature of the shock, the possible variation of that nature, the magnitude, the potential duration, and then we have to be open, and we cannot, I think it would be a serious mistake today to say this is a case of look through,” she said.
“We simply don’t know, too soon to tell. So where we will move and demonstrate our agility is once we have enough data, enough information and once that is the case, then we will not be hesitant.”
She again highlighted her institution’s determination to act if needed.
“The key certainty that I have is that number one, we will not let inflation expectations be de-anchored and we will deliver and continue to deliver on our mission to keep prices stable, which means 2% medium term.” — Bloomberg
Disclaimer
The information provided in this report is of a general nature and has been prepared for information purposes only. It is not intended to constitute research or as advice for any investor. The information in this report is not and should not be construed or considered as an offer, recommendation or solicitation for investments. Investors are advised to make their own independent evaluation of the information contained in this report, consider their own individual investment objectives, financial situation and particular needs and should seek appropriate personalised financial advice from a qualified professional to suit individual circumstances and risk profile. The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report. While every effort is made to ensure the information is up-to-date and correct, Bond and Sukuk Information Platform Sdn Bhd (“the Company”) does not make any guarantee, representation or warranty, express or implied, as to the adequacy, accuracy, completeness, reliability or fairness of any such information contained in this report and accordingly, neither the Company nor any of its affiliates nor its related persons shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
YOU MAY ALSO LIKE
ARTICLE
Apr 16, 2026
|
3 min read
ARTICLE
Apr 16, 2026
|
5 min read
ARTICLE
Mar 16, 2026
|
3 min read
ARTICLE
Mar 16, 2026
|
4 min read