On Thursday Christine Lagarde will face her toughest test yet as ECB President. The emergency rate cuts from both the Fed and Bank of England significantly increased pressure on the ECB to act. But with monetary policy edging closer to its limit, it faces a difficult task. Lagarde must ensure that the remaining space is used wisely. A comprehensive package using all the tools at the ECB’s disposal seems the most likely option.
Carney Confirms Global Central Banks Are Coordinating Policy
The world has changed since the last ECB’s Governing Council policy meeting on 28 January. Just six weeks ago Lagarde struck a relatively upbeat tone, pointing to a “moderate increase in underlying inflation” and ongoing (albeit relatively subdued) growth. Favourable financing conditions were assumed to sustain the Euro area recovery and ensure inflation’s return to target. The coronavirus wasn’t mentioned in the press statement or Q&A, with the only reference to China being the positive news from the phase one trade deal with the US.
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