The ECB plans to maintain supportive monetary policy, Ms Lagarde tells MEPs 

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The Economic and Monetary Affairs Committee quizzed the ECB President about economic stimulus stemming from negative interest rates and plans for the pandemic emergency purchase programme.

During the monetary dialogue on Monday evening, the ECB’s President Christine Lagarde assured ECON MEPs that, while the EU’s economic outlook is improving, the ECB will continue the pandemic emergency purchase programme to preserve favourable financing conditions in order to support economic recovery. The economy will continue to be financed during the crisis, she said.

Apart from keeping favourable lending conditions in order to support the EU economy while it emerges from the pandemic, MEPs were concerned about the potential side effects of continuous negative interest rates such as housing market bubbles.

Ms Lagarde stated that low interest rates result in increased lending to companies and help the EU economy to recover. They have potential side effects that have to be watched closely, she added, but currently the benefits outweigh the costs.

MEPs asked about inflation and spill over effects from rising inflation in the US. Risk from US inflation, fiscal boost and stimulus to the US economy will have an impact on the EU GDP and inflation, the President said, but she insisted that the situation in the EU and the US is different because of economic cycles, inflation and inflation expectations.

Although rising inflation rates are temporary and transitory, stemming from temporary factors such as rising energy prices, we will monitor them carefully as well as inflation expectations, Ms Lagarde assured MEPs.

Finally, MEPs asked about the ongoing strategy review, the outcomes of which will be made public after formal decisions have been taken and the state of play on the digital euro. The design of the digital euro will be discussed on 14 July by the ECB governing council with a view to finding a solution for the shrinking use of cash and facilitating access to it for people without bank accounts. On the other hand, the digital euro should become an attractive means of payment and not a way to invest. It should safeguard financial stability, protect privacy and stay under the ECB’s control, as the bank is not interested in exploiting personal data.

During the following discussion with Paschal Donohoe, President of the Eurogroup, MEPs focused on short and medium term actions in order to transform the economic rebound into long-lasting recovery. Additionally, the Eurogroup will now work to build a consensus on the fiscal rules reform, Mr Donohoe assured MEPs.