FRANKFURT (Reuters) – Inflation will fade so the European Central Bank should not tighten policy as it could choke off the recovery, European Central Bank President Christine Lagarde said on Friday.
“When inflation pressure is expected to fade – as is the case today – it does not make sense to react by tightening policy,” she said. “The tightening would not affect the economy until after the shock has already passed.”
Tightening policy now would squeeze on household incomes, which are already facing a shock from soaring energy costs that will likely dampen growth, she added.
“In this situation, tighter monetary policy would only exacerbate the contractionary effect on the economy,” she said.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa)
