Lagarde’s meeting with the MEPs comes after the urgent decision adopted last week to speed up the creation of an instrument to avoid financial fragmentation in the eurozone in the face of the escalation of the risk premiums of some States, of which she already informed the Ministers of Economy and Finance on the 16th.
The president of the ECB pointed out in the current inflation environment, whose rate stood at 8.1% in May, “it clearly poses a challenge”, so that at its meeting on June 8 and 9, the eurozone issuer decided to end to its debt purchases on July 1 and raise interest rates by 25 basis points that same month.
In addition, the institution expects to apply a new increase in interest rates in September, the level of which will depend on medium-term data and could be higher if inflation forecasts persist or deteriorate.
Starting in September, the ECB anticipates that the path of increases will continue “gradually” to reach the 2% inflation target.
Lagarde added that since the process of normalizing monetary policy began in December 2021, the ECB has said that it “will act against the resurgent risks of fragmentation” to preserve the good transmission of its monetary policy.
For this reason, he recalled, on June 15, the Governing Council decided to reinvest the bonds acquired with the extinct debt purchase program due to the pandemic with “flexibility”, as well as ordering its services to accelerate the completion of a new anti- fragmentation.
These measures, adopted urgently by the ECB, followed an increase in the risk of the sovereign debt of some countries on the periphery of the eurozone last week after the announcement of rate hikes in July, which fueled fears of a new sovereign debt crisis similar to the one that took place a decade ago in the euro area.
Lagarde defended that its action against the risk of fragmentation in the eurozone is “at the very center” of the ECB’s mandate since it is “anti-fragmentation is a precondition” for the proper transmission of monetary policy throughout the region which, in turn, turn, is essential for price stability.
“If there’s a risk that it won’t, it’s our duty to apply the tools with the flexibility and power to fight the risk of fragmentation,” he said.
