President of the European Central Bank Christine Lagarde said that inflation in the Eurozone will decrease, and that the ECB should not tighten policy since it could stifle the recovery, and hinted that bond purchases will continue next year.
Inflation in the euro zone reached 4.1% in October, pushed up by increased energy costs, and is anticipated to remain above the ECB's 2% target next year as pandemic-strained suppliers struggle to keep up with the economy's reopening.
However, Lagarde stressed that the ECB should not hit the brakes now but rather keep fuelling the economy's recovery.
"It does not make sense to tighten policy when inflation pressure is anticipated to fade," she said. "The tightening would not impact the economy until the shock has passed."
At its policy meeting on December 16, the ECB will decide on the future of its bond-purchase programmes.
While the central bank has already indicated that its 1.85 trillion euro Pandemic Emergency Purchase Programme will conclude in March, Lagarde stated that asset purchases will continue to be important after that date.
"Even after the pandemic emergency is expected to end, monetary policy, including the right calibration of asset purchases, will be critical to support the recovery and the sustainable return of inflation to our objective of 2%," she said.
However, Lagarde said that tightening policy now would put a strain on household incomes, which are already being impacted by rising energy costs, which will stifle growth.
"As the economy's positive demand forces gain strength, the medium-term inflation forecast looks brighter than it did before the pandemic," Lagarde said. "As a result, we should continue to nurture these forces by not withdrawing policy support too soon."