(Bloomberg) -- European Central Bank President Christine Lagarde said inflation expectations need to remain anchored and that the public needs to know price gains will be brought back to target.
“Given this exceptional uncertainty, what we central bankers have to do is actually deliver monetary policy that anchors expectations so those expectations remain moored to target,” she said in Bangkok on Friday.
“We need to signal to the public, to the observers, to the commentators, that in all scenarios inflation will return to our medium term target in a timely manner. This is the best we can do in the current environment,” Lagarde said in a conference organized by the Bank of Thailand and the Bank for International Settlements.
All eyes are on the final ECB meeting of the year on Dec. 14-15, when officials will decide whether to deliver a third straight interest-rate increase of 75 basis points, or moderate the pace to half point. Inflation last month provided grounds for a smaller move, slowing for the first time in 1 1/2 years.
Earlier this week, Lagarde said that she’d be surprised if price growth had peaked. Some of her hawkish ECB colleagues, meanwhile, have warned against a premature end to the campaign to wrest inflation back under control.
In Bangkok on Friday, Lagarde warned the outlook will remain uncertain for some time. “We are going through a very very challenging time where ground is shifting under our feet,” she said.
Lagarde said the dollar’s strength is having less of an impact on the euro area than it is on emerging economies.
Attentive to FX
“Conventional wisdom will tell you that we do not target any exchange rate,” she said. “Obviously we are monitoring and are very attentive to variation of exchange rates and in particular we are monitoring carefully what has been an appreciation of the dollar.”
Lagarde said fiscal policy that is temporary, targeted and tailored can play an important role in cushioning Europe from the energy crisis.
“Those three Ts can help alleviate energy shocks and put a cap on inflation expectations,” she said. “Fiscal policies that create excess demand in supply constrained economies might force monetary policy to tighten more than otherwise necessary, and regrettably at the moment at least, some of the fiscal measures we’re analyzing from many of the euro area governments are pointing toward the latter category rather than the former.”
--With assistance from Andrew Langley and Michael Heath.
(Updates with more comments from ECB president)
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