Financial tensions are worrying the economic authorities. European Central Bank (ECB) President Christine Lagarde said Wednesday that financial turmoil linked to recent bank failures has created "new downside risks" for the economy, she said at a forum in Frankfurt. "In the face of accumulating shocks and changing geopolitics, the degree of uncertainty is expected to remain high," she added.

The scenario of the institution of a return of inflation towards 2% in 2025, if confirmed, shows that there is "some way to go to contain inflationary pressures", stressed the President of the ECB. The ECB has raised interest rates at an unprecedented speed, raising them by 350 basis points since last July, in an attempt to contain inflation that peaked above 10% in October, in the wake of Russia's war in Ukraine. "However, inflation remains high and uncertainty about its evolution has increased," requiring "a robust strategy for the coming period," said the former Economy Minister.

The bet of inflation far from being won

The bet of a return to price stability, defined by an inflation rate of 2% in the medium term, is still far from being won: price pressures "have spread" with "core" inflation, excluding the energy and food sectors, which currently oscillates "between 4 and 8%", according to Christine Lagarde. It was therefore necessary to raise rates to levels "sufficiently restrictive, in order to curb demand", according to Lagarde. This process "is only beginning to take effect now," she warned.

In the wake of the tightening of the credit valves, the ECB has abandoned its talk of expectations for its actions, and wants to rely on the data of the moment when it meets its Governing Council. "In other words, ex ante, we are not committed to continuing to raise rates or to stop the increases," according to Christine Lagarde. A certainty according to her, "there is no contradiction between price stability and financial stability". The latter is not threatened for the moment in the euro zone, according to numerous statements by the financial authorities and politicians.

  • Economy
  • Christine Lagarde
  • Euro area
  • ECB
  • Inflation