28 September 2022

ECB's Elderson: The ECB’s monetary policy strategy: delivering our mandate in all circumstances: EP conference

Although I am delivering these remarks remotely, it is always a privilege to speak directly to you, the elected representatives of Europe’s citizens, the very same citizens – served by EU institutions, including the European Central Bank – who are united in their commitment to foster peace and stability in their part of the world, even when that very world is subject to significant transformation and upheaval.

The pandemic and the war have shaken the environment in which the EU must address the vital challenges that it faces, including the ongoing climate and environmental crises. Since Russia’s unprovoked invasion of Ukraine, the global economic outlook has become much less favourable. Having said that, the invasion has not shaken the EU’s resolve to address the challenges faced. In actual fact, the war and the ensuing energy crisis have only served to increase EU authorities’ determination to reduce the bloc’s dependence on fossil energy sources. Even if in the very near-term the energy crisis may cause an increase in non-gas fossil fuel being used, the likelihood of a timely and orderly transition towards a low-carbon economy consistent with the EU’s commitment to the Paris Agreement has increased. That being said, another record-breaking summer has confirmed that physical risks of climate change and environmental degradation are materialising ever more frequently, which will add to the risk of increased macroeconomic volatility until the transition has been completed.

When the boat we all share is rocked to such an extent by external forces, we need to be able to count on internal anchors of stability. The ECB provides one of those crucial internal anchors by pursuing its mandate of maintaining price stability in the euro area as laid down in the Treaty on the Functioning of the European Union.

In line with that mandate, our primary concern is, as always, our primary objective: price stability. Inflation is currently far too high. The shocks that are hitting the euro area economy have not only led to a turning point in the outlook for economic activity but are also contributing to further upward price pressures that are much stronger and more persistent than we previously anticipated. This implies that inflation is likely to stay above our 2% target for an extended period. As a result, we accelerated the pace of monetary policy normalisation over the summer to ensure that monetary policy is consistent with inflation returning to our target in the medium term. We have communicated that we will take a meeting-by-meeting approach in assessing the appropriate next steps in monetary policy normalisation. As reiterated by President Lagarde at the European Parliament earlier this week, the direction of travel is clear, and we will raise rates further in the pursuit of our objective. This will avoid that our monetary policy puts upward pressure on prices by sustaining demand when supply is constrained. It will also guard against the risk of a persistent upward shift in inflation expectations. At the same time, with many of the sources of today’s inflation originating from supply constraints, government policies that redirect public and private investment to supporting sustainable growth can help mitigate inflationary pressures in the medium to longer term. In any case, these investments are crucial to achieving the EU’s aim of meeting the goals outlined in the Paris Agreement....

more at ECB

© ECB - European Central Bank