EUROPEAN Central Bank (ECB) president Christine Lagarde said officials are being “attentive” to financial market developments, shortly after her colleague Philip Lane said he was not worried about French turbulence.
The policymakers responded to questions that followed a week of turmoil that wiped US$258 billion from the market capitalisation of the country’s stocks and caused the yield on France’s bonds to widen compared with German equivalents.
“Price stability goes in parallel with financial stability,” Lagarde told reporters on Monday (Jun 17) while visiting a quantum computing research site in Massy, south-west of Paris.
“We are attentive to the good functioning of financial markets, and I think that today in any case we’re continuing to be attentive, but it’s limited to that.”
French markets began the week showing some signs of stabilisation after far-right leader Marine Le Pen pledged to work with President Emmanuel Macron if she prevails in upcoming national elections. The head of state called that vote following his party’s defeat in a region-wide ballot for the European Parliament.
Earlier on Monday, Lane – the ECB chief economist – was sanguine about the turmoil of the past week, when questioned on the matter at a Reuters event in London.
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“What we’re seeing in the markets is, of course, a repricing,” he said. “It’s not, you know, the world of disorderly market dynamics.”
ECB vice-president Luis de Guindos, speaking at a conference in Spain, similarly observed that price movements have been “orderly, not of an extreme impact”.
Speaking in what he described as a personal capacity, the former Spanish finance minister added that recent political developments do worry him.
“I’m concerned by illiberal movements that put into question the European integration process,” Guindos said. “In this world of renationalisation, return to domestic issue, the only way is to be more united.”
The overall tone of the policymakers’ remarks chimes with Bloomberg’s report last week that ECB officials saw no cause for alarm in the recent market turbulence.
In more general comments, Lane explained the rationale for the central bank’s emergency crisis tool known as the Transmission Protection Instrument, or TPI.
“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.”
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 were 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 rate hikes to quell record-high inflation, but gave no clear guidance on where policy was heading next. BLOOMBERG
