Lagarde's message of long-term tightening

European Central Bank (ECB) President Christine Lagarde said keeping the interest rate at 4% would help rein in prices. The European Central Bank (ECB) President Christine Lagarde said keeping the deposit rate at 4% would be enough to rein in inflation but that authorities would consider raising borrowing costs again if needed. Lagarde signaled at an event hosted by the Financial Times that the central bank was gaining confidence that its current monetary moves were working. “The level we are at now, if we can sustain it long enough – and of course we can discuss that – will make a significant contribution to bringing inflation back to our 2% target. If there are big shocks, depending on the nature of the shocks, we will have to revisit that,” Lagarde said. “We really need to monitor energy prices going forward. We should not assume that the latest headline inflation of 2.9% is something to be underestimated for a long time,” she said. Asked about faster monetary tightening, the ECB chief insisted there would be no direct bond issuance, but said a discussion on reinvestments in the pandemic emergency bond-buying programme “will be held” by officials at some point. The issue has been a prominent area where the ECB’s monetary policy and national finances collide. Ministers met in Brussels on Thursday to try to advance talks on how the EU’s budget deficit rule limiting it to 3% of gross domestic product is set to be reinstated next year. Lagarde said she was relieved by the progress made on the issue, but stressed that reaching an agreement was “critical” and that the lack of agreement at the moment made her “disturbed”.