ECB president nominee Lagarde stresses “agility” in policy

FRANKFURT, GERMANY - JUNE 13: (FILE PHOTO) A huge euro logo is seen in front of the headquarters of the European Central Bank (ECB) on June 13, 2005 in Frankfurt, Germany. In the fight against the recession in many countries of the euro-area the European central bank lowered the key interest again clearly. The most important interest for the supply of the credit and finance with central bank money is reduced by 0,5 per cent points to 2,0 per cent. (Photo by Ralph Orlowski/Getty Images)

Christine Lagarde, stressed the importance of “agility” from the European Central Bank (ECB) in the face of changes and challenges as she introduced her agenda as new ECB president during a hearing at the European Parliament on Wednesday.

Lagarde, who has been nominated to succeed Mario Draghi as head of the ECB in November, praised the bank’s leadership for being innovative and agile in coming up with new tools to deal with economic challenges in previous years, adding that she agreed with “a highly accommodative stance of monetary policy for a prolonged period of time” that the ECB put forward in a recent policy guidance.

However, she also called for the policymakers to be “mindful of the negative effects and potential side effects” of the unconventional monetary policy and to take the concerns of the people into account.

It was widely expected that the ECB would roll out a monetary stimulus package next week after its regular policy meeting, which would include lowering the interest rates further into the negative territory and a resumption of its bond-buying programme.

The likely rate cut has caused European banks to grumble as they are already suffering from low profitability. Deutsche Bank CEO Christian Sewing said Wednesday at a banking summit in Frankfurt that the low interest rates will ruin the financial system in the long run.

In her speech in front of the EU Parliament in Brussels, Lagarde also hinted on her attitude towards non-bank’s role and financial innovation. She said central banks and financial supervisors need to ensure the safety of the financial sector but also “open up to opportunities that are procured in those changes” and allow non-banks space to develop.

While emphasizing the commitment to the ECB mandate and the agility to adjust to changing circumstances, Lagarde also spoke of the central bank’s role in greening the financial system and safeguarding a multilateral order that is under the threat at the moment.

Lagarde, a French national, would likely be the first woman to lead the ECB. She became the managing director of the International Monetary Fund (IMF) in 2011, and served as France’s finance minister prior to joining the IMF.