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Christine Lagarde: as long as necessary

Christine Lagarde: as long as necessary

Information is not investment advice

Tone and message

On Thursday, January 23, the ECB announced the interest rate at 0%. So it remained unchanged, as expected by observers. The ECB President Christine Lagarde gave a press conference shortly after, to shed some light on inner workings of the bank and the ideas behind the current policy. However, there was not much take note on. The tone in which Christine Lagarde spoke during the press-conference was clear, confident and straightforward – as usual. The message, however, was not so, not to say contradictory. Below are some points for consideration following her speech. In fact, consideration is almost the only thing that’s left for an observer after listening to the ECB President.

Quantitative easing

So the interest rate was kept at 0%, quite expectedly. No news here. One of the main questions around the ECB’s actions is the quantitative easing policy. Specifically, how long it will be exercised. Christine Lagarde said nothing specific, but insisted on keeping the same direction “as long as necessary”. The objective is to “maintain favorable liquidity conditions”.

Inflation

The ECB President didn’t give many comments about the inflation either. At least, nothing new that would substantially change the impression we have on the bank’s view towards inflation. Journalists asked if she would consider in theory revising the target 2% in favor of a band, but she discarded any specific “suggestions” that would question the legitimacy of the current approach to inflation.

Strategy

Answering one of the questions from the audience, Christine Lagarde said that the ECB has launched a review of the monetary strategy in place. And by December 2020, she informed, it would be reasonable to expect the review to be concluded. However, similar to the way she commented on other areas of activity, she did not disclose any specifics and did not share any personal impression of the coming changes: “I do have my views… but my mission is to harness all the views around”. The only certainty is that this review will include all areas of ECB’s functioning, from monetary maneuvers to the way of communication.

Conclusion

It seems this year starts in the “wait and watch” mode. It is specifically applicable to the outlook given by Christine Lagarde. Let’s see then. Stay updated with FBS.

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