Interview with Christine Lagarde, President of the ECB, conducted M.C. Govardhana Rangan on 24 February 2023

27 February 2023

A generation of central bankers did not bother about inflation at all. For a year now that seems to be the only issue. What went wrong?

My predecessors and many central bankers around the world had to fight deflation, and they had to adjust policy as a result of that. More recently, we saw prices rise. And that was largely as a result of higher energy prices and supply bottlenecks. Many of us assumed that it would be transitory as is often the case with supply-driven shocks. But then came the war in Ukraine, and the rarification of supply of oil and gas and the price increases that we witnessed.

So the war changed everything…

We went from COVID lock down with reduced activity to the reopening of the economy. You suddenly wanted to go to the restaurant or to the bar with friends. There was a surge in demand which was met by restrained supply.

Interest rates need to rise to fight inflation, but the magnitude of the increases became a surprise. How long will this have to go on for?

We had to take prompt and significant measures. In December 2021, we announced that we were going to stop our pandemic-related net asset purchases. Since July, we have hiked interest rates at a pace and size that is unprecedented. Interest rates are the most efficient tool in the present circumstances. There is every reason to believe that we will do another 50 basis…