LONDON (Reuters) – The European Central Bank cut interest rates for the seventh time in a year on Thursday, looking to prop up an already struggling euro zone economy that will take a large hit from U.S. tariffs.
Following are highlights of ECB President Christine Lagarde’s comments at a news conference after the policy meeting.
ON TARIFFS
“I’m not going to characterize what’s happening at the moment. I think that the commentators, the top notch economists who specialize in trade matters, all agree that it will have downside consequences.
“The consequences will differ depending on which part of the world you stand and that really justifies the fact that monetary policy decisions are not going to be the same the world over.”
ON TRUST
“I think for economic players, investors, consumers, employers, employees, all categories, confidence, predictability and a reasonable level of certainty are important factors for them to make decisions … and we will certainly make sure that we respect those principles.”
NO TALK OF STIMULUS
“We did not discuss the matter of stimulation. And we certainly rallied around the statement, that is in the monetary policy overall statement, that we will take the appropriate monetary policy stance and decisions in order to make sure that we deliver on our commitment to reach our target.”
NO BETTER TIME TO BE DATA-DEPENDENT
“There is so much ongoing that some of which will probably settle a bit by our June meeting. But given that the 90 days (pause in higher U.S. tariffs) will only elapse around the ninth of July and then the 14th of July, we will know more on that front and on the fiscal front.
“Clearly, the incoming of new governments in various countries including in Germany will also take us to more clarification on exactly where the situation will evolve.
“But there is no better time to be data-dependent, there’s no better time to rely on very strong and solid analysis by all our staff.”
RELATIONSHIP WITH FED
“I have a lot of respect for my esteemed colleague and friend (Fed Chair) Jay Powell. We have a steady, solid relationship – amongst central bankers – I think that that relationship is decisive in order to have a solid financial infrastructure on which to make sure that there is financial stability.
“We have demonstrated in the past that we could actually operate on that basis of consultation (and) understanding (of) the financial risk and we will continue doing so in an undeterred and unchanged manner. I’m sure.”
ON THE DEBATE WITHIN THE GOVERNING COUNCIL
“In total candour with you, there were a number of governors who a few weeks ago would have argued in favour of a skip (in rate cuts) … then we will decide when we have more data.
“So that was on one side of the debate, if you will. And there were some to say, well, it might warrant a 50 (basis point cut), but at the end of the day this is not what I’m arguing for. So when I say debated, there was not any single argument in favour of arriving at 50 basis points… it was a unanimous rally around 25 basis points.”
TRADE RE-ROUTING
“There will be some redirection, rerouting, of goods that will be supplied by markets that are subject to much higher tariffs.”
‘NEUTRAL RATE’ ONLY IN A SHOCK-FREE WORLD
“Our view is that the neutral rate, apart from the measurements and issues associated with it, is a concept that works for a shock-free world. That’s how it is described. And anybody in this room who thinks that we are in a shock-free world, would I suggest maybe raise their hands or have their head examined either way. But we are not in a shock-free world, that’s for sure, so that assessment of the restrictiveness (of policy) is not operative anymore.
“What we need to do is to determine the appropriate monetary policy stance that will actually take us to our destination, our 2% target in a sustained manner.”
NEED TO BE DATA-DEPENDENT
“More than ever, now we need to be data-dependent, and we need to rely on safe, reliable data.
“We are going to be particularly attentive to all that at the moment, and we will decide meeting by meeting, what is certain is destination.
“And we’re determined to take whatever measures will be appropriate and to use whatever instruments will be appropriate to arrive at that destination.”
ECB STANCE DETERMINATION
“Our stance will have to be determined by two key attributes. And the first one is readiness. We must be attentive to all the developments and in particular, in particular the development of those new shocks. And be able to make the appropriate determination. That’s the first one. The second one is agility.”
DIRECTION OF TRAVEL
“I will not comment on the direction of travel, I will comment on the destination, that – as you know – is our 2% target.”
RESTRICTIVENESS
“Meaningless (to assess restrictiveness) because assessing restrictiveness relies heavily on the comparison between the policy rates and the neutral rate… The neutral rate, apart from the measurements issues associated with it, is a concept that works for a shock-free world.”
TARIFF EFFECT
“We know that it’s a negative demand shock. We can anticipate that it will have some impact on growth, but the net impact on inflation will only become clearer over the course of time.”
‘UNANIMOUS DECISION’
“I can confirm to you that the decision to cut rates by 25 basis points was a unanimous decision.
“Options were debated, but there was no one to argue in favour of a 50 basis points cut, for instance, so 25 basis points was definitely the rate cut on which all in the room agreed.”
TRADE DISRUPTIONS
“Increasing global trade disruptions are adding more uncertainty to the outlook for euro area inflation. Falling global energy prices and appreciation of the euro could put further downward pressure on inflation. This could be reinforced by lower demand for euro area exports owing to higher tariff and a rerouting of exports into the euro area from countries with overcapacity.”
GLOBAL TRADE TENSIONS
“Downside risks to economic growth have increased. The major escalation in global trade tensions and associated uncertainties will likely lower euro area growth by dampening exports, and it may drive down investment and consumption.
“Deteriorating financial market sentiment could lead to tighter financing conditions increase risk aversion and make firms and households less willing to invest and consume.”
DEFENCE BOOST
“The increase in defence and infrastructure spending would add to growth.”
URGENT FISCAL POLICIES
“In the current political environment. It is even more urgent for fiscal and structural policies to make the euro area economy more productive, competitive and resilient.”
‘EXCEPTIONAL UNCERTAINTY’
“The economic outlook is clouded by exceptional uncertainty.”
(Reporting by Reuters Global News Desk)
