Lagarde launches major ECB review

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Christine Lagarde, president of the European Central Bank (ECB), addresses the media during a news conference following the meeting of the governing council of the ECB in Frankfurt am Main, western Germany, on Thursday. — AFP

FRANKFURT AM MAIN, Germany — Christine Lagarde on Thursday announced a major review of the ECB's tools and goals and said the eurozone slowdown was beginning to ease as she made her debut as president vowing to bring her "own style" to the job.

Speaking at a Frankfurt press conference after chairing her first governing council meeting, Lagarde said the bank's "strategic review" would start next month and aim to be completed by "the end of 2020".

A central focus of the reassessment, the ECB's first since 2003, will be to look at whether the bank's main objective of keeping inflation "close to, but below" two percent was still relevant after years of anemic price growth.

But Lagarde said she also wanted to focus on "major changes" that have taken place since the last review, including the challenges posed by climate change and technological advances as well as rising inequality.

As expected, Lagarde kept her predecessor Mario Draghi's ultra-loose monetary policy unchanged Thursday, holding interest rates at historic lows and leaving a monthly bond-buying program untouched.

The easy-money policies are designed to stimulate the euro area and drive up inflation at a time of weak global growth, weighed down by US-China trade rows and Brexit turmoil.

Lagarde said the ECB was seeing "some initial signs of stabilization in the growth slowdown", despite "persistent global uncertainties".

While manufacturing remained weak as trade tensions fester, the services and construction sectors remain "resilient", she said.

Although her maiden press conference was light on monetary policy news, Lagarde showed she was keenly aware that her performance was being closely scrutinized.

The former International Monetary Fund chief who has no prior central banking experience took pains to urge observers not to over-interpret her every word or compare her to former ECB boss Mario Draghi.

"Don't overinterpret, don't second guess, don't cross reference, I'm going to be myself and therefore probably different," she told journalists.

"Once and for all, I'm neither a dove nor a hawk, and my ambition is to be this owl, that is often associated with a little bit of wisdom," said Lagarde.

In central bank jargon, monetary doves are deemed more favorable to easing than the so-called hawks.

The ECB also unveiled its latest growth and inflation forecasts, for the first time running through to 2022.

Risks to the euro area outlook "remain tilted to the downside, but have become somewhat less pronounced", Lagarde said.

The ECB slightly lowered its eurozone growth forecast for 2020 to 1.1 percent from 1.2 percent, but said it saw output strengthening to 1.4 percent in the following two years.

Inflation meanwhile is predicted to climb from 1.1 percent in 2020 to 1.6 percent in 2022 — bringing the ECB closer to its target.

Pressed for details on the planned review, Lagarde said there was "no preconceived landing zone at this point in time".

But after years of stubbornly low inflation, calls have grown for the bank to loosen its strict inflation goal.

Lagarde has also repeatedly said monetary policy had a role to play in tackling the climate crisis, even if the real driver for change lies with fiscal policy.

She said the bank would be speaking to lawmakers, academics and civil society representatives to hear their views.

The focus on climate change comes just days after new European Commission head Ursula von der Leyen unveiled a "Green Deal" for the bloc that aims to build a carbon neutral economy by 2050.

Lagarde praised "the ambition" shown by the initiative and said she hoped it would win widespread backing.

"In our strategic review we will take up climate change, we will take up the fight that is taken up by the European commission and I hope other European institutions, and see where and how we can participate." — AFP


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