The Strategist

ECB to normalise monetary policy

06/21/2022 - 10:19

Christine Lagarde, the head of the European Central Bank (ECB), told the European Parliament committee that the ECB is moving toward normalizing but not tightening its monetary policy.

European Central Bank via flickr
European Central Bank via flickr
"We are in the process of normalizing monetary policy," she explained, "but we are not tightening it."

Lagarde, in particular, emphasized that, as of July 1, the watchdog would cease net asset purchases under the APP program. In addition, during the July Governing Council meeting, the ECB aims to boost its key rates by 25 basis points. Lagarde did not rule out a possibility of another rate rise in September.

Over the medium run, the watchdog wants to keep inflation in the eurozone at 2%. Inflation is expected to be 6.8% this year, 3.5 percent in 2023, and 2.1 percent in 2024, according to the ECB's current prediction.

Lagarde emphasized that the ECB must keep a close eye on the effects of its price normalization program on the eurozone economy. According to Lagarde, the regulator's primary forecast does not predict a drop in the region's GDP. She stated that it is expected to expand by 2.8 percent this year and 2.1 percent in each of the years 2023 and 2024.