ECB Chief Christine Lagarde - inflation, her succession, Europe & AI
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Why did the ECB raise interest rates and what does it mean for consumers?
This morning EU finance ministers are meeting in Dublin and they're being joined by Christine Lagarde, President of the European Central Bank and one of the most powerful women in the world. Last night she joined me in studio. I began by asking her after the ECB increased interest rates last week by a quarter of a percent, making mortgage repayments more expensive, whether consumers can expect more interest rate rises in the month. That will depend on the future.
Mm. Because we uh we live through such uncertain times that we have decided to uh actually assess the situation, look at the data, uh look at three things. The inflation outlook, the underlying inflation, and the transmission of our monetary policy into the economy. And it's on the basis of these three elements and on the data that we receive, the projections that we produce, that we then decide what we have to do. The only thing we are absolutely confident about is the goal. We have to bring inflation to two percent and we have to offer price stability to uh the Europeans. So this is what we have to do and we will decide meeting by meeting what is appropriate, uh whether we should we should hold, we should hike, we should cut.
That's very unlikely at the moment, the lat the latter. But that's that's how we proceed.
You're you're aware, I'm sure, about the housing situation in this country. It's very difficult for people to afford a house. People even on good salaries are are pushed to the pin of their collar to pay back a mortgage and an interest ri rate rate rise. It hurts people. Is is uh d are those people in your mind when you're making decisions like this?
Absolutely. You know, there is nothing worse than inflation for people who are vulnerable and who do not have a a large income and assets that they own. So the key mission we have is inflation first and foremost. But of course we are attentive to to housing costs, we're attentive to growth, we're attentive to employment, and at the moment we have a situation where growth is a little more promising than we had thought. So we uh uh improved we hiked, if you will, uh our our growth projections. Uh employment is is in a good place and we have low unemployment in most uh European countries. But we have as a result of the cost of energy resulting from the Middle East uh war in particular, we have price of energy that are rising.
And what we have to be very Attentive to is it's not that we just react to the price of energy and I think that people have tended to th to think okay, price of energy up, interest rates up. It's not as as simple as that. It's a bit more subtle. We react to the risk that inflation becomes embedded. And that's why we talk about underlying inflation. Does it travel into the economy? Does it have an impact on employment cost? cost on wage negotiations. For the moment we're not seeing that, but I think with that rate increase we're we are in a good position to assess that risk of inflation becoming embedded uh in in the economy.
So the inflation we're seeing at the moment is caused by the high energy prices and obviously raising interest rates is unfortunately not going to affect what's happening in the Strait of Hour Moose.
No, a central bank cannot reopen the Strait of Ormuz. A central bank cannot drill and find uh fossil energy and a central bank cannot just by miracle uh install solar panels that will replace that. What a central bank has to do is to provide that price stability and to do that we have to anticipate what the consequences of energy price increase will have on the rest of the economy.
How is the ECB assessing inflation, underlying price pressures and policy transmission?
economy and we have to signal to everyone we are damn serious about maintaining price at two percent. For the moment we have inflation rates, depending on the member states, at three point two percent. Our forecast for this year is three percent. We have to rein that in. We have to bring it to two percent. By the way. By the way, can I add I just want to add something on housing. Housing costs are are high and they are much higher in some countries than others in Europe.
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Chapters
4 chapters
1
Why did the ECB raise interest rates and what does it mean for consumers?
0:00–3:44
2
How is the ECB assessing inflation, underlying price pressures and policy transmission?
3:44–6:29
3
What is the ECB’s view on the housing market and mortgage affordability?
6:29–10:41
4
Why are energy prices driving inflation and how is the ECB responding?
10:41–20:15