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Christine Lagarde said the euro zone’s economic slowdown is showing tentative signs of bottoming out, sending the single currency higher as she spoke after her first policy meeting as president of the European Central Bank.
There are “some initial signs of stabilization” and a “mild increase in underlying inflation,” she told reporters on Thursday. She repeated that risks to growth remain on the downside but said they are “somewhat less pronounced.”
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The euro jumped as high as $1.1154 before paring gains to trade up 0.1% at $1.1142 at 2:55 p.m. Frankfurt time.
Still, Lagarde unveiled updated economic forecasts that show the outlook remains muted for now. Growth will be 1.1% next year -- a slight revision lower -- and 1.4% in 2021, the bank predicted. The first outlook for 2022 showed an expansion of 1.4% that year. Inflation is seen at 1.6% in 2022 -- still below the goal of just under 2%.
The Governing Council earlier held its deposit rate at a record-low minus 0.5%, and bond purchases at 20 billion euros ($22 billion) a month, sticking to a controversial package unveiled in September.
Lagarde also pledged the central bank’s first strategic review since 2003, giving it an opportunity to assess whether the inflation goal needs to be adjusted. On Thursday, she said such a review is “overdue” and she aims to start it in January, completing it before the end of the year.
It needs to be “comprehensive” and include consultation with members of the European Parliament, the academic community and representatives of civil society, she said. She added that there is no “preconceived landing zone” but it will address challenges including climate change, technology, and rising inequality.
Her plans have worried some officials, who fear being diverted from their primary mandate of restoring price stability. Inflation has averaged just 1.2% so far in 2019, despite years of unprecedented and often contentious stimulus.
Moreover, while some economic indicators have suggested lately that the bloc’s slowdown might be easing, Germany remains embroiled in its worst manufacturing slump in a decade, and the U.S.-China trade war and Brexit have continued to weigh on growth.
The subdued outlook raises questions over whether the central bank has enough monetary ammunition left. Even officials most supportive of stimulus have signaled a reluctance to cut the deposit rate deeper below zero, and Lagarde herself again warned about detrimental side effects such as financial bubbles, squeezes on bank profitability and discontent among savers.
