Debate: European Central Bank – annual report
Date: MONDAY, 14 FEBRUARY 2022
Speaker: Christine Lagarde
Language: EN

I would like to not answer all of your questions, because there are too many of them, but I would like to focus on three key areas where I would like to give you some feedback.  One is I would like to identify yet again for you, what matters and what is the framework within which we make monetary policy decisions because I’ve heard here and there concerns about independence, about the mandate, about the focus, and I would like to clarify that one more time.  The second item that I would like to also quickly point you to is the fact that a lot of the actions that we’ve taken in the last couple of years have actually benefitted SMEs. I’ve heard here and there that the action benefits large corporate accounts and not so much the real economy, and I think that that stands to be corrected.  And third, I would like to make a few points in relation to climate change and how it actually impacts our monetary policy, both in terms of stance and transmission.  So, on the first one, which is the universe within which we make our decisions. We are guided by a number of things that you are familiar with. The first one, which is the sort of foundation for the action, is our mandate, which is price stability as a primary mandate with secondary objectives, but secondary objectives without prejudice to the first objective, which is price stability. So that’s number one.  Number two, we spent nearly 18 months – all of us, governors of all the 19 national central banks and members of the Executive Board of the ECB trying to identify what our strategy was, what our objectives were, what our measurements were, what our tools were, and we reached a unanimous consent around our strategy review. So we know quite well what our objective is in terms of how we measure it. And that’s the point that I made earlier in my introductory remarks when I referred to simple communication around the objective, which is this 2% symmetric medium term.  The third item, which is important as well, which guides us and which is relatively technical but also pretty straightforward, is our forward guidance. And our forward guidance in relation to rates includes three particular components: Are we on target, well ahead of our horizon? Is it going to be durable so that at the end of the horizon, we will be on target? And are we confident that today the progress that’s made will take us to that target? That’s our forward guidance and it’s helping us identify whether we are on target for the medium term, as we have identified in our strategy.  The other element of forward guidance, which deals with the next point that I want to make, is the sequence, and that is the forward guidance that we’ve identified in terms of when do we look at interest rates relative to asset purchases? Well, we complete net asset purchases and only then do we look at interest rate hikes. So we have these elements that actually guide us in order to make decisions.  Final point, which is very important, is that the decisions we make are data-dependent. It cannot be just on the fly. It cannot be a political decision. It has to be rooted in data and determined by data. And it will be so in that sequential and gradual way that I have tried to identify in my introductory remarks.  Second point where I wanted to come back briefly, the two key instruments – there were others – but the two key instruments that we have used during the pandemic were the Pandemic Emergency Purchase Programme (PEPP) and the targeted longer-term refinancing operations (TLTROs). Well, the volumes that have been deployed, particularly under the TLTROs clearly benefited SMEs. Large corporate accounts have the technical skills, the expertise, understanding to go out on markets. SMEs, particularly the small ones, they don’t have that option in many instances. So what do they do? They actually go to their banks. And as you all know, Europe and the euro area is largely dependent for its financing of its economic operations on banking support. SMEs have had the great benefit of TLTROs during this whole period of time.  Final point, because there have been many issues that were raised in relation to climate change, and I did tell you that we were on schedule, with reference to our action plan. So I would like to tell you and to share with you what it means, because being on schedule supposes that we all know inside-out what the action plan is, which is not necessarily the case.  So what does that mean? It includes actually a lot of work that we do together with the Commission and together with you, the European Parliament, and where you play a critical role. The Corporate Sustainability Reporting Directive (CSRD), the Taxonomy Regulation and the Regulation on sustainability-related disclosures in the financial services sector are going to help us a great deal in properly managing the risks that we have on our balance sheet and actually expecting from banks in particular that they do comply with disclosure requirements.  You have a key role to play to facilitate the implementation of the ECB’s action plan by ensuring a swift implementation of the relevant legislation. In particular, any delay in the implementation or the transposition of the CSRD might have a knock on effect on the timeline of the ECB action. So in that respect, we very much rely on the speed at which you can operate in order to, ourselves, apply those criteria and those disclosure requirements throughout our own activity.  So, rest assured that we are driven, dedicated to one mandate, which is that of price stability, but that we have to be very mindful of how climate change impacts the action that we have to take. We are not in the driving seat. You are, governments are. But, the central banks that are members of the euro system and the ECB at its heart, are very keen and have actually unanimously approved the fact that climate change is one of the components that we have to take into account for monetary policy determination for the macroeconomic framework and obviously for the supervision of the banking institution that we supervise throughout the European Union.