ECB President Lagarde: The central bank has a "package of options" to respond to potential energy inflation shocks

On March 25, European Central Bank President Christine Lagarde stated that in the face of the energy crisis triggered by the Iran war, the ECB has various policy options to address potential inflation shocks, with specific measures to be adjusted based on the scale and duration of the shocks.

Lagarde emphasized that #欧洲央行 will not "be paralyzed by indecision," and that they are prepared with "a series of gradual response plans" in monetary policy, although she did not reveal specific implementation details.

She further stated that the central bank would not hastily take action until it has sufficient information regarding the scale, duration, and transmission paths of the shocks. Currently, the ECB is maintaining existing interest rates.

Meanwhile, the central bank is committed to making every effort to keep the inflation rate at the target level of 2%, and this commitment is "unconditional." Even if oil and gas prices continue to rise significantly, the central bank will adhere to this target.

Last week, the ECB kept interest rates unchanged and released a series of economic scenarios, indicating that inflation risks do not develop linearly but rather show that the longer the shocks last and the greater their intensity, the faster prices and wages rise.

Analysts point out that for smaller, short-lived, and one-time supply shocks, the central bank can temporarily ignore them; however, if the deviation of inflation expectations from the target level intensifies and lasts longer, the necessity for corresponding actions will increase.

Lagarde admitted that although monetary policy is unable to directly lower energy prices, the ECB will closely monitor whether the current rise in oil and gas prices will trigger a "general inflation" situation.

She specifically mentioned that the impact of the #通胀 shock caused by the Russia-Ukraine conflict in 2022 has "left a deep imprint" in the economic field. It is this experience that keeps the ECB highly vigilant in the face of the current situation.

However, at the beginning of 2022, driven by strong demand and supply shortages post-pandemic, the inflation rate had reached 5%. Today, moderate economic recovery, tightened fiscal policy, and nearly 2% interest rates have helped suppress inflation.