Christine Lagarde, President of the European Central Bank, played down concerns about a recession in the euro zone on Tuesday. She also expressed her team is ready to raise rates at a faster pace, if needed, if inflation continues to shoot higher.
The euro zone is expected to see a headline inflation rate of 6.8% in 2022, which is well above the target of ECB, 2%.
The Eurozone has witnessed economic growth levels slowing amidst an energy crisis, food insecurity and geopolitics crisis as and when economists are assessing whether Eurozone will hit by a recession this year.
“We have markedly revised down our forecasts for growth in the next two years. But we are still expecting positive growth rates due to the domestic buffers against the loss of growth momentum,” Lagarde said at the Sintra Forum.
To recap, earlier on this month, the European Central Bank held an emergency meeting to announce a new tool aimed at addressing fragmentation risks in the euro zone. However, market players were left with questions about the timing and magnitude of the mechanism.
Investors are concerned about high inflation and have been tracking closely what the ECB is saying and doing. Investors are wary of the inflationary pressure in the Eurozone and have been tracking the direction and action of the ECB, and simultaneously worry for the debt levels in Europe, for instance Italy. A tighter monetary policy could impair financial standings for these economies.
“If the inflation outlook does not improve, we will have sufficient information to move faster. This commitment is, however, data dependent,” Lagarde added.
