The head of the European Central Bank said Wednesday that policymakers stand ready to hike interest rates even if an expected jump in euro zone inflation proves temporary.
ECB President Christine Lagarde said a “not-too-persistent” rise in inflation could trigger a hike after the bank was forced to upgrade expectations for euro zone inflation, which is now forecast to rise above the 2% target.
“If the shock gives rise to a large, though not-too-persistent, overshoot of our [inflation target, some measured adjustment of policy could be warranted,” Lagarde told an audience at “The ECB and Its Watchers” conference in Frankfurt, Germany.
“To leave such an overshoot entirely unaddressed could pose a communication risk: the public may find it difficult to understand a reaction function that does not react,” she added, without giving a timeline or criteria for when the central bank might deem an interest rate hike necessary.
Before the Iran conflict erupted in late February, the euro zone’s inflation rate had dipped below the central bank’s 2% target. In February, however, the rate ticked up to 1.9%.
