THE European Central Bank (ECB) sees no reason to be overly concerned about recent financial turbulence in France, according to chief economist Philip Lane.
“What we’re seeing in the markets is, of course, a repricing,” he said on Monday (Jun 17) at an event organised by Reuters in London. “It’s not, you know, the world of disorderly market dynamics.”
The market gyrations erupted in the wake of President Emmanuel Macron’s call for a snap parliamentary vote after his party’s defeat to Marine Le Pen’s National Rally in the European elections.
French government bonds won some respite on Monday after assurances from the far-right leader that she would cooperate with the head of state should she prevail in the upcoming ballot.
Lane’s remarks follow Bloomberg’s report last week that ECB officials see no cause for alarm in the recent market turbulence. In more general comments, he explained the rationale for the central bank’s emergency crisis tool known as TPI.
“So it’s very important that the ECB makes clear that we will not tolerate unwarranted and disorderly market dynamics that would pose a serious threat to the transmission of monetary policy,” he said. “We cannot have a case where essentially market panic, market illiquidity, market sentiment disrupts our monetary policy.”
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ECB president Christine Lagarde is in her native France on Monday and is likely to be quizzed on the topic when she speaks to reporters.
On inflation and interest rates, Lane reiterated the ECB’s confidence to bring consumer-price growth back to the 2 per cent target in the second half of 2025 and that officials are not pre-comitting to any particular path.
The ECB at the beginning of June lowered its borrowing costs for the first time after an unprecedented barrage of rates hikes to quell record-high inflation, but gave no clear guidance on where policy is heading next.
Lane said that every meeting is “live” but suggested that another rate reduction in July is rather unlikely, and that the next big discussion might come after the summer break at the September meeting.
Highlighting the “momentum” in services inflation, he said that the ECB needs “more than a month of data” to assess the trend. In May, price growth in that sector surprisingly picked up to 4.1 per cent.
Money markets are betting a follow-up to this month’s quarter-point cut will come by October while the chance of a third reduction by year-end has risen to 75 per cent from 25 per cent a week ago.
Lane also said the Federal Reserve’s new dot-plot showing officials expect just one rate cut this year does not change his thinking about diverging policies between the two central banks.
“There’s a range of opinions in that dot-plot, as opposed to being a big movement in the distribution,” he said. BLOOMBERG
