MNI: Scenario Analysis Key In Uncertain World -Lagarde

Scenario analysis will be key for the European Central Bank as it sets policy in the face of an uncertain and volatile outlook for inflation, President Christine Lagarde said in her opening speech at the ECB Forum in Sintra on Monday.

“Scenario analysis is helping us to better understand the range of risks ahead – and how best to respond to them. For example, our scenarios on potential U.S. import tariffs have helped us navigate an uncertain global trade landscape, while also enabling us to communicate more clearly the two-sided risks shaping our current monetary policy stance,” she said, speaking on the same day the ECB released its assessment of its strategy review.

The ECB will react equally forcefully to sustained deviations in either direction from its inflation target, Lagarde said, pointing to the inflation surge in 2022-23.

“One insight from our last strategy review was that, when rates are near the lower bound, persistence can substitute for forcefulness – helping to deliver the necessary policy stance with fewer side effects. Until recently, however, this concept had not been widely applied to tightening cycles”, she said.

 “At our last monetary policy press conference in June, I described our monetary policy stance as being “in a good place”. Following the conclusion of this strategy assessment, I would add that our monetary policy strategy is also in a good place – strengthened by experience, and better equipped for the challenges of the future”, Lagarde added.