FRANKFURT, March 19 (Reuters) – The European Central Bank kept its key interest rate at 2% on Thursday and warned that the war on Iran was clouding the outlook for growth and inflation in the euro zone.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
ON THE OUTLOOK FOR GROWTH
“The risks to the growth outlook are tilted to the downside, especially in the near term.”
ON UPSIDE RISKS TO INFLATION
“The risks to the inflation outlook are tilted to the upside, especially in the near term.
“A prolonged war in the Middle East could lead to a larger and longer-lasting upward shift in energy prices than currently expected, raising euro area inflation further. This could be reinforced and become more persistent if inflation expectations and wage growth were to rise in response.”
INFLATION COMMITMENT
“We start from a good position, and we are well positioned to demonstrate a capacity to apply our strategy and to be agile, to do what is necessary…we are determined to ensure that inflation stabilises at 2% medium term. This is our commitment.”
NOT SAYING IN GOOD PLACE
“I’m not saying that we are in a good place. We are well positioned… I think we are both well positioned and well-equipped to deal with the development of a major shock that is unfolding.”
ON DISCUSSIONS WITHIN THE GOVERNING COUNCIL
“I would characterise the overall mood of the group as being calm, being determined, and being laser-focused.” “There was no range of views. It was a unanimous decision that was taken not to move rates at all.”
ON WHAT THE ECB WILL FOCUS ON
“We will be particularly attentive to developments in all commodity markets. We will be particularly attentive to supply bottlenecks. We will be particularly attentive to selling price expectations of firms… We will be particularly attentive to all demand indicators, be it PMIs, consumer confidence, etc. We will be particularly attentive to wage trackers.”
ON THE ECONOMIC ENVIRONMENT
“The external environment remains challenging, including in light of volatile global trade policies.
“The war in the Middle East is disrupting commodity markets and weighing on real incomes and confidence. This has led to a downward revision of consumption and investment in the baseline staff projections, especially for 2026.
“The impact would be even more pronounced in alternative scenarios, with a more severe and prolonged energy shock.”
TARGETED ENERGY PRICE RESPONSES
“Any fiscal responses to the energy price shock should be temporary, targeted, and tailored.”
ON THE SCENARIOS TO BE PUBLISHED LATER
“In the (first) scenario, the price of oil and gas goes significantly up, and higher than in the baseline (scenario), but it falls back to the March 4 baseline, pretty much, at the end of our projection horizon.
“On the other hand, the severe one, it goes up as well, a little higher than in the adverse, but it doesn’t fall back very fast. So it stays high for a longer period of time and it settles at the March 4th baseline beyond the end of our projection horizon, that’s one of the key differences.”
SCENARIOS DON’T INCLUDE POLICY ACTIONS
“Our (alternative) scenario work does not factor in any monetary policy measures. So the numbers that you will see are without monetary policy, whereas the baseline includes what is anticipated by markets as at the cut-off date. So that’s a big difference before you jump to conclusions.”
ON DIFFERENCES BETWEEN 2022 AND CURRENT SITUATION
“Another point that we have to keep in mind is that back in 2022, when the shock hit, inflation was already at 6%. That’s a big difference with where we are at the moment. Our latest reading was 1.9% and we had inflation at target in the medium term. So that’s a major difference.
LABOUR MARKET NOT AS HOT AS IN 2022
“We have a labour market which is solid, but not as hot as it was back in ’22 where we had shortages of labour and a different bargaining position.”
ON CURRENT SHOCK
“[It] will depend on the duration, the intensity and the propagation. And by propagation I mean the indirect effects and the second-round effects.
“And we need to have the best senses and the best way to anticipate where these indirect effects and where these second-round effects are going, if at all.
“There is a bit of propagation actually.”
(Reporting by Reuters Global News Desk)
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