At a conference for ECB observers in Frankfurt, President Christine Lagarde said that everyone can be sure that the European Central Bank will bring inflation back to 2%. “I thought it was a harsh statement, but when he had to explain how the European Bank intends to organize it, things went downhill,” says macroeconomist Edin Mujagic.
“The already implemented rate hikes, from 0% to 3%, are starting to have some effect,” Central Bank President Lagarde said in his speech. According to Mujagic, a lot of imagination is required to see this as correct information. “Any economics student knows that as long as your interest rate is negative in real terms — you take the interest rate and subtract inflation from it — you’re still not fighting inflation.” This is currently the case. He therefore assumes that Lagarde is referring to the fact that inflation in the eurozone has decreased in recent months. “But that has very little to do with decisive action by the ECB.”
Uncertainty
Mujagic had another point of criticism. Lagarde said, “We’re not committed to another rate hike, but we’re not done raising rates either.” “Then I asked myself: what does it really mean?” When Mujagic refers to himself, as a citizen, “he cannot sleep peacefully after this speech knowing that the ECB will make sure that inflation goes low in the near future and stays low”.
It’s not just about whether interest rates are being raised, but also about the extent to which,” Mujagic says. “If you really want to win the war on inflation, interest rates have to be much higher.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
