European Central Bank President Christine Lagarde told a conference Wednesday that the bank that the central bank was not wedded to raising interest rates, stressing that its decisions would be driven by the data. File photo by Erik S. Lesser/EPA-EFE
March 22 (UPI) -- European Central Bank President Christine Lagarde reiterated Wednesday the bank's goal of taming inflation in a timely fashion but stressed that the "high levels of uncertainty" injected by the turmoil in the global banking system would factor in any decision to tighten monetary policy.
While headline inflation was likely to decline steeply this year, driven by falling energy prices and easing supply bottlenecks, strong underlying inflation dynamics meant inflation must be quickly brought down to the ECB's 2% medium-term target, Lagarde told a conference at Frankfurt's Goethe University.
"To achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today," Lagarde said.
But she said that high uncertainty meant it was even more important that the interest rate path was data-dependent, meaning the ECB was "neither committed to raise further nor are we finished with hiking rates."
"If the baseline scenario in our most recent projections is confirmed, we will still have ground to cover to make sure that inflation pressures are stamped out," Lagarde said.
The approach marks a departure from the bank's MO of clearly signaling the future direction of monetary policy in order to underscore its determination to reduce inflation.
Lagarde warned that new downside risks added by "the recent financial market tensions " threw into doubt the bank's recent forecast for headline inflation to fall from its current 8.5% to 2.1% in 2025 with core inflation at 2.2%.
She said that any of the assumptions in the projections, such as those on fiscal policies and energy and food prices were volatile, which implied additional uncertainty around the baseline for both growth and inflation.
"Those tensions have added new downside risks and have made the risk assessment blurrier," Lagarde added.
"Some of this uncertainty will recede as the fallout from recent events in financial markets becomes clearer. But faced with overlapping shocks and shifting geopolitics, the level of uncertainty will most likely remain high."
Eurozone inflation fell for the fourth successive month in February helped by a large fall in the pace at which energy prices are rising, according to European Union figures.
However, the decrease of just 0.1% left consumer price Inflation virtually unchanged at 8.5% and may be an indication that the rapid fall seen in recent months may be leveling off.
January's inflation rate came in at 8.6%, after initially being estimated at 8.5%.
Prices in the 20 countries that use the euro have fallen every month since November with inflation now at its lowest level since June.