Christine Lagarde hardens ECB’s message on fighting inflation

Christine Lagarde, president of the European Central Bank. The ECB is hardening its line on tackling inflation. Photograph: Olivier Hoslet/EPA/ShutterstockChristine Lagarde. president of European Central Bank, said the ECB would act in “a determined and sustained manner” to tackle record inflation in the euro zone, especially if there were signs of price expectations rising sharply among consumers and businesses.

The ECB is planning to start raising rates in July for the first time since 2011, and Lagarde on Tuesday stuck to the bank’s plan to begin with a quarter percentage point increase before a bigger move in September unless there is a rapid improvement in the inflation outlook. Ms Lagarde said the ECB needed to act “in a determined and sustained manner, incorporating our principles of gradualism and optionality” — a shift from her previous comments that had put more emphasis on a commitment to raise rates only “gradually”.

Some hawkish rate-setters plan to push for a bigger rate rise of 50 basis points in July if price pressures keep rising. “If we see that the situation has worsened, that inflation is high and we see negative news in terms of inflation expectations, then in my view front-loading the increase would be a reasonable choice,” Mārtiņš Kazāks, Latvia’s central bank governor, told Bloomberg TV.

She said a new “anti-fragmentation” bond-buying tool could be designed to keep it separate from its other monetary policy instruments and to avoid one interfering with the other. “There is no trade-off between launching this new tool and adopting the necessary policy stance to stabilise inflation at our target. In fact, one enables the other.”

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