Lagarde backs further rate cuts by ECB as recession risks rises

Christine Lagarde, the soon to be the president of European Central Bank, backed the central bank’s proposal to introduce further rate cuts and inject fiscal stimulus in the economy. Lagarde advocated the need for loosening monetary policy of the eurozone as it economies embattle the Brexit uncertainty along with trade war fires.  

Lagarde, who would succeed Mario Draghi on November 1, attended her first hearing with the members of European Parliament on Wednesday, showing her support for Draghi’s measures of bond purchases and negative interest rates. During her hearing in Brussels, the 63-year-old lawyer argued that the proposed measures were necessary as they proved successful in the past and took the economy out of financial turmoil, along with generating 11 million new jobs (since 2013). She said that ‘the crisis would have been a lot worse’ without these measures.

Lagarde urged the better off economies of the eurozone, such as Germany and Netherlands to pool in a little extra to share the central bank’s burden of launching fiscal stimulus package. She said that the “embryonic” eurozone budget would not be enough to bring stabilise the bloc.

Her comments come ahead of ECB’s plan to bring interest rates further low, entering negative territory, and bringing back its €2.6tn bond-buying programme, in the coming week. Though nothing has been finalized yet as discussions are ongoing with regard to the size of the rate cut.

Lagarde’s comments attracted criticism from some economist who said that the ECB was running out of measures to combat recession as the interest rates are already low and further loosening of monetary policy could prove to be dangerous.

Lagarde also committed to working more proactively towards tackling climate change, making it a macroeconomic priority at the ECB. She proposed that ECB could fuel environment bonds through its corporate asset purchases, once the EU and other regulators reach consensus over a common framework for financing the green initiatives. 

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