European Central Bank President Christine Lagarde hinted at the possibility the ECB will raise interest rates again at the Governing Council meeting scheduled next month, during an interview with The Yomiuri Shimbun.
Lagarde noted that "we know that inflation numbers will remain high in the quarters to come," expressing a sense of crisis over rising prices. Regarding a rate hike in December, she said, "What I know is that, on the basis of the information we have today, it would take significant changes for the direction of travel to be different from what I expect."
Last month, Lagarde announced that she would resign in February, ahead of the expiration of her term in October next year. The interview with The Yomiuri Shimbun is her first with the media since the announcement.
Lagarde cited the French presidential election scheduled for next spring as a reason for her resignation. She said that she sees "a lot of key questions, key issues, either not being debated or debated with wrong facts, based on the wrong principles."
"I want to be able to speak up on the facts, the data, the truth, not silently listen to invented propaganda" she added.
Marine Le Pen, leader of the far-right National Rally, is currently leading opinion polls ahead of the French presidential election, while the centrist candidate -- who is seen as President Emmanuel Macron's successor -- is struggling to gain support.
The following is excerpted from the interview.
Yomiuri: I want to ask about monetary policy. How do you see the inflation outlook now?
Lagarde: Headline inflation in October was at 4%, which was higher than we had expected a few months ago but in line with market expectations. It looks very high. But it's important to look under the hood.
It's largely attributable to energy, because energy inflation increased to 20.8%, up from 18.9% in September, driven by the conflict in the Middle East and less global refinery capacity. So energy is weighing heavily on our inflation numbers. Food inflation has also increased.
But the underlying indicators are stable. Core inflation, taking out energy, food, alcohol and tobacco, was 2.5%, unchanged from September. Services inflation edged up a little to 3.3% but remains in the range we have seen over the last four months.
We still don't have the detailed inflation breakdown, which will shed more light on what's driving services inflation -- that is, whether it's mainly very energy intensive sectors like transport or whether we are starting to see broader indirect effects. We'll look closely at this.
In any event, we know that inflation numbers will remain high in the quarters to come. The higher they are, and the longer they remain high, the greater the risk to our medium-term target.
Yomiuri: Do you think there is a need for an interest rate hike before any secondary effects become apparent?
Lagarde: I think what we have experienced recently, and are still experiencing, massively, is uncertainty. Unpredictability. The fragmentation of the world as we knew it. Trade disruptions, supply chain disruptions, and a focus on security more than efficiency -- all of that is completely changing the landscape in which economic players are operating. And as a result of that situation, we have established that we will decide our monetary policy on the basis of data and meeting by meeting.
So, I cannot tell you today that we will for sure do this in December. What I know is that, on the basis of the information we have today, it would take significant changes for the direction of travel to be different from what I expect. That's what I said during my press conference.
Yomiuri: Now, on the reasons behind your decision to step down early. You explain that you feel a deep urge to speak more freely, which obviously makes us curious what is it that is so urgent for you to say.
Lagarde: On a global level, I see a set of principles and values coming under attack. These are principles and values that I personally hold in the highest regard: the rule of law, international cooperation, trade as a principle of prosperity and growth, respect for all cultures and people. These are ideas that have been very much part of how I grew up and that have been with me throughout my life. And now I see them being threatened.
So, those principles are under attack and it matters to me that I stand up to defend them. In my home country, there is a lot at stake with the presidential election coming up. And I see a lot of key questions, key issues, either not being debated, or being debated with wrong facts, based on the wrong principles.
When I hear one of the candidates who is relatively high in the polls say that sovereign debt should be burnt, I can't just stay completely quiet and I want to be able to speak up, on the facts, the data, the truth, not silently listen to invented propaganda.
Yomiuri: Do you think that speaking up will be enough, or do you also envisage a more active role or even participating in the presidential elections?
Lagarde: I know that I'm respected in many corners --not all corners, some people don't like me at all, and that's fine. But my voice is listened to and I think that I cannot just stay put, watching on comfortably from the sidelines, without speaking out.
Yomiuri: What do you think about the US midterm election outcome and its impact on the global economy?
Lagarde: I have always had faith in the American people. I think it was Churchill who once said that the American people eventually find the best solution after having tried all the other ones. I think that there's a process that is underway at the moment. It's an institutional and governance regime that lives well with checks and balances: you have a Republican President, you have a Democratic Congress, you have a judicial power that serves the principles of justice. Let's hope that this system of checks and balances will give better results and will help foster more international cooperation.
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This article is from The Yomiuri Shimbun. Neither Dow Jones Newswires, MarketWatch, Barron's nor The Wall Street Journal were involved in the creation of this content.
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