Europe | On the one hand… and on the other

Summary

The ECB has been holding its key policy interest rate at 2% for several months, with medium-term inflation forecasts close to its target and a relatively positive assessment of the European economy, which is growing near its potential rate.

Key points

• Key points:
• In other words, the euro area is in a situation of relative stability—particularly noteworthy given the constant stream of economic and geopolitical shocks affecting the global economy—which leads the central bank to identify a wide range of upside and downside risks to both inflation and growth.
• In fact, the ECB has successfully steered the European economy through the disinflation process and is now in a “wait-and-see” mode, comfortable enough with current conditions to focus on longer-term issues.
• The ECB is relatively optimistic about the current economic environment. It points to improvements in construction and increased investment in technology and infrastructure, which Lagarde links to the development of artificial intelligence.
• Nor does the ECB appear particularly concerned about the recent appreciation of the euro, which prompted some comments from its members when the exchange rate moved above 1.20 against the dollar amid uncertainty surrounding appointments at the Fed.
• In addition, Lagarde announced measures to strengthen the liquidity operations framework, making it easier for other central banks to access euro-denominated lending facilities.

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