New ECB Chief Lagarde to address plenary for the first time. Image source: "ECB Chief Lagarde" by European Union 2020 is licensed under CC BY 4.0
The President of the European Central Bank Christine Lagarde spoke in front of the European Parliament in Strasbourg yesterday, on the occasion of the presentation of the ECB Annual Report 2018 at the assembly.
Lagarde’s spirited speech defended the central bank’s current monetary policy, which continues to accommodate the fragile recovery of the Eurozone economy, while also urging governments to implement more proactive fiscal policies and boost aggregate spending.
She began by listing the major contributions that the monetary policy and chiefly the low interest rates are currently doing for the economy:
“The ECB’s monetary policy since 2014 relies on four elements: a negative policy rate, asset purchases, forward guidance, and targeted lending operations. These measures have helped to preserve favourable lending conditions, support the resilience of the domestic economy and – most importantly in the recent period – shield the euro area economy from global headwinds.”
She continued by acknowledging the dangers of keeping the interest rates low for a prolonged period of time. The biggest threat, and indeed an impediment, is to savers, especially pensioners, who find it increasingly unfavourable to keep their savings locked up in a bank account.
Nevertheless, the President found time to stress on the beneficial prospects that are created in the current environment:
“Other policy areas – notably fiscal and structural polices – also have to play their part. These policies can boost productivity growth and lift growth potential, thereby underpinning the effectiveness of our measures. Indeed, when interest rates are low, fiscal policy can be highly effective: it can support euro area growth momentum, which in turn intensifies price pressures and eventually leads to higher interest rates.”
Heightened government spending in the bloc would support better growth prospects and likely bolster the efficiency of the monetary policy. This, in turn, would lead to the eventual lifting of the low interest rates once the economy becomes more resilient and growth gets more solid.
The overall positive tone of her speech has temporarily curbed the selloff of the euro.
The EURUSD has momentarily stopped its downward swing, and the price is currently consolidating just below the major support at 1.09250.
If, however, the price fails to bounce back within range, it is likely to extend its plunge towards the next significant support level at 1.08980.
EURUSD 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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