In a new episode of “A Central Banker Enters Parliament,” economist Edin Mujagic hears from Christine Lagarde that the European Central Bank (ECB) is continuing to hike interest rates. “Even if inflation continues to fall.” According to Mujagic, the ECB cannot do otherwise. “That was all he could have said, because the credibility of the ECB is at stake.”
That credibility is at stake has to do with how quickly the ECB raises interest rates. The central bank has raised interest rates by record steps in recent months. It would therefore be unusual to suddenly lower interest rates again, says Mujagic. “He can’t say more.”
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Yet Mujagic hears a different voice from another key ECB official: that of chief economist Philip Lane. ‘Since the economy is not doing well and inflation is coming down, he said the arguments for raising interest rates in equally large steps are no longer valid. This is more important than what Lagarde says,” says Mujagic.
‘More value to Lane declarations’
‘Lane is the one who explains to an ECB board meeting how the bank sees things, and also makes policy proposals. Usually the bank does what it proposes. So he now he says he doesn’t have to be so fast anymore.’
Mujagic therefore attaches more importance to Lane’s statements than to Lagarde’s. Ultimately, Lane is a monetary conscience of the ECB, he is the economist on the board of directors. Experience shows that what he proposes is adopted. The president is more there to spread the story and explain it.