ECB president Lagarde reaffirms plans to hike interest rates

Doing so was “a precondition to the proper transmission of monetary policy,” she said. Excessive differences in yields had to be nipped ‘in the bud’, she said.

“These decisions underpin our previous commitments to adjust all of our instruments within our mandate, incorporating flexibility if warranted, to ensure that inflation stabilises at our 2 per cent target over the medium term,” Lagarde told European lawmakers.

Her statement came after a recent emergency meeting of ECB policymakers to address market jitters after the central bank announced its first planned interest rate rise in over a decade.

Notably, the spread between the yields on German government bonds and those of more indebted eurozone members—a measure of bond market stress – began to increase.

In response, the ECB pledged ‘flexibility’ and said it would complete the design of a tool to tackle growing differences in borrowing costs.

The specifics could be unveiled at the central bank's next regular policy meeting on July 21.

Lagarde also warned that the risk of an abrupt correction in Europe’s financial and housing markets is high.

“Risks to financial stability have perceptibly increased since the beginning of this year,” she said in her capacity as the chair of the European Systemic Risk Board, the European Union’s financial risk watchdog.

“While the correction in asset prices has so far been orderly, the risk of a further and possibly abrupt fall in asset prices remains severe,” she added.

ALCHEMPro News Desk (DS)