FRANKFURT, April 30 (Reuters) – The European Central Bank left interest rates unchanged as expected on Thursday but signalled its rising concerns over soaring inflation, bolstering bets it would lift rates several times this year with an initial move in June.
Following are highlights of ECB President Christine Lagarde’s comments at a press conference after the policy meeting.
REFORMS TO SPEED UP ENERGY TRANSITION ARE VITAL
“The Governing Council highlights the urgent need to strengthen the euro area economy while maintaining sound public finances. Fiscal responses to the energy price shock should be temporary, targeted, and tailored.
“Reforms to enhance the euro area’s growth potential and accelerate the energy transition to reduce reliance on fossil fuels are more vital than ever.”
INFLATION RISKS
“The risks to the inflation outlook are to the upside. If energy prices were to rise by more and for longer than currently expected, euro area inflation would increase further. This could be reinforced and become more persistent if higher energy prices were to spill over by more than expected to other prices and to wages, if longer-term inflation expectations were to rise in response, or if global supply chains were disrupted more broadly.”
GROWTH RISKS TO THE DOWNSIDE
“The risks to the growth outlook are to the downside. The war in the Middle East remains a downside risk to the euro area economy, adding to the volatile global policy environment. Prolonged disruption of the supply of energy could increase energy prices further and for longer than currently expected.”
INFLATION EXPECTATIONS
“Inflation expectations have moved up significantly over shorter horizons. Most measures of longer-term inflation expectations stand at around 2%, supporting the stabilisation of inflation around target in the medium term.
“The increase in energy prices will keep inflation well above 2% in the near term. As the period of high energy prices extends, the likely impact on broader inflation through indirect and second-round effects intensifies. We will therefore closely monitor the size and persistence of the energy price surge, and how it feeds through to price and wage setting, inflation expectations and overall economic dynamics.”
OUTLOOK UNCERTAIN
“Domestic demand remains the main driver of growth, supported by a resilient labour market. However, the economic outlook is highly uncertain and will depend on how long the war in the Middle East lasts and how strongly it affects energy and other commodity markets as well as global supply chains.”
ECONOMY HAD SHOWN MOMENTUM BEFORE WAR
“The euro area economy was showing some momentum when the current turbulence started.”
(Reporting by Reuters Global News Desk)
Comments