European Central Bank President Christine Lagarde said budget aid to protect eurozone citizens from rising food and energy prices should be limited and temporary to ease pressure on inflation.
Some eurozone countries are using fiscal measures to help vulnerable households, but this risks increasing already high budget deficits, and increasing rather than reducing inflationary pressures.
In a parliamentary statement, Lagarde said: “It is essential that the financial support used to protect households from the impact of higher prices be temporary and specific (…). Hearing in Brussels, Belgium
Lagarde reiterated the ECB’s latest message that interest rates should rise at upcoming policy meetings even if growth slows significantly.
Won’t correct ‘policy errors’
Lagarde, in response to a question about the next Italian government, said the European Central Bank would not use its latest emergency plan to buy the bonds of countries making “political mistakes”.
Asked if the European Central Bank could deploy a Transfer Protection Instrument (TPI) to help Italy, Lagarde declined to name any country, but said the system exists only to support financially wise countries, while others should seek bailout.
The TPI was announced in July to curb rising borrowing costs between Italy and other heavily indebted countries, but it has not yet been used.
“It is used when there are unregulated market dynamics that are not justified by fundamentals or economic policy mistakes that would have been made,” Lagarde explained.
