Lagarde: Back to basics in an uncertain environment

IRAN HAS REQUESTED A MEETING. IT WILL TAKE PLACE TOMORROW IN DOHA! President DJT

Introductory speech by Christine Lagarde (President, European Central Bank) at the ECB Forum on Central Banking. The ECB Forum on Central Banking – the Sintra Forum – is an annual event organised by the European Central Bank and is held in Sintra, Portugal. It brings together central bank governors, academics, financial market representatives, journalists ...

Members observed that financial conditions abroad had eased somewhat since the previous meeting, in response to progress towards resolving the conflict in the Middle East. Expectations for central bank policy rates had generally declined, oil prices had fallen significantly and equity prices had risen in many countries. Members acknowledged the indications of a potential resolution of the conflict but noted the ongoing uncertainty over the final outcome and the implications for energy markets. Even after the recent easing in financial conditions, policy interest rate expectations across many advanced economies remained higher than before the start of the conflict in the Middle East. Members noted that the European Central Bank and Norges Bank had both raised interest rates to contain the second-round effects of higher oil prices and address broader concerns about above-target inflation. The US Federal Reserve and Bank of England – both of which had been expected by financial market participants before the conflict to have lowered their policy rates by now – had decided to maintain their policy rates. Financial market participants expected both to lift these rates later in 2026. More generally, financial markets continued to expect that many advanced economy central banks would tighten monetary policy before the end of 2026 in response to above-target inflation and concerns about the inflationary effects of the conflict. Bond yields in many advanced economies, including Australia, had unwound some of their earlier increase since the previous meeting. These falls were in response to both lower oil prices and the flow of economic data. However, yields had risen in the United States and Japan, reflecting stronger economic data. Short-term inflation compensation measures had generally eased but remained higher than before the onset of the conflict in the Middle East. Longer term market expectations for inflation had remained generally stable and consistent with central banks’ targets. The Australian dollar had depreciated a little since the previous meeting, in line with a decline in yield differentials (particularly against the United States) and a modest fall in commodity prices. The trade-weighted exchange rate nevertheless had remained comparable to its level at the onset of the conflict and broadly consistent with its estimated long-run equilibrium level. RBA: ONGOING WEAK PRODUCTIVITY MAY HINDER PROGRESS IN BRINGING INFLATION BACK TO TARGET ... RBA: WILL TAKE NECESSARY STEPS TO ENSURE PRICE STABILITY, INCLUDING POTENTIAL RATE HIKES ... RBA: Interest rates must remain restrictive to bring down excess demand pressures in the economy. RBA: Recent data varied, indicates economy slowing broadly as anticipated