Lagarde speech: Interest rates will remain main tool for fighting inflation

While testifying before the Committee on Economic and Monetary Affairs (ECON) of the European Parliament in Brussels, European Central Bank (ECB) President Christine Lagarde reiterated that interest rates will remain their main tool for fighting inflation.

Additional takeaways

"In December, we will also lay out the key principles for reducing the bond holdings in our asset purchase programme portfolio."

"It is appropriate that the balance sheet is normalised over time in a measured and predictable way."

"How much further rates need to go, and how fast, will be based on our updated outlook, the persistence of the shocks, the reaction of wages and inflation expectations, and on our assessment of transmission."

"Strong labour markets are likely to support higher wages."

"Fiscal policy needs to be considerate to not add to inflationary pressures."

"Incoming data suggest that wages are picking up, and we will continue to assess their implications."

"Rate adjustments will take some time to be felt in the economy."

"Growth is expected to continue weakening for the remainder of this year and the beginning of next year."

Market reaction

EUR/USD retreated from the multi-month high it touched near 1.0500 earlier in the day and it was last seen trading at 1.0445, where it was up 0.5% on the day.