Lagarde in Sintra, Portugal “Macroeconomic stabilisation in a volatile inflation environment”

 The Governing Council has provided orientation on both dimensions. It has stated clearly that “future decisions will ensure that the key ECB interest rates will be brought to levels sufficiently restrictive to achieve a timely return of inflation to our 2% medium-term target and will be kept at those levels for as long as necessary”.

 we will have to bring rates to “sufficiently restrictive” levels and keep them there “for as long as necessary”.

 inflation has already dropped by 42 percentage points from its peak last summer.

the second phase of the inflation process is now starting to become stronger.

All this means that we will face several years of rising nominal wages

Barring a material change to the outlook, we will continue to increase rates in July.

Uncertainty about transmission arises from the fact that the euro area has not been through a sustained phase of rate hikes since the mid-2000s and has never seen rates rise so quickly. And this raises the question of how quickly and forcefully monetary policy will be transmitted to firms – via interest-sensitive spending – and households, via mortgage payments.

First, we need to bring rates into “sufficiently restrictive” territory to lock in our policy tightening.

Second, we need to communicate clearly that we will stay “at those levels for as long as necessary”. 

Lagarde  Sintra, 27 June 2023

https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230627~b8694e47c8.en.html