Christine Lagarde delivered her maiden speech as European Central Bank President to a banking forum in Frankfurt Friday that suggested little change from the central bank's previous negative rate strategy under Mario Draghi.
Lagarde, who assumed her role earlier this month after an eight-year tenure as Managing Director of the International Monetary Fund in Washington, focused most of her speech on the need for Eurozone governments to increase public spending in order to boost underlying demand and offset the current trade weakness in the global economy.
That emphasis suggests Lagarde, a former French Finance Minister who is hugely respected in European political circles but has scant experience on hard monetary policy, will focus her time at the central bank towards urging a new fiscal approach for currency-area members, whom many have accused of being too-reliant on the ECB's loose monetary policy during the region's stalled recovery, as opposed to major changes in the Bank's low-rate tactics.
"Since countries in a monetary union do not have their own exchange rates, they have to adjust to crises through prices," Largarde told the Frankfurt European Banking Congress. "This is easier to achieve when growth is strong at the euro area level and inflation is in line with the ECB's objective."
"But if internal demand is too weak and inflation too low, such re-balancing across countries obviously becomes harder," she added. "If countries boost growth by investing in productive areas of the economy, it not only lifts demand in the short run. It also provides the ingredients for maintaining competitiveness in the face of long-run global challenges."
The euro slipped around 10 pips against the U.S. dollar to trade at 1.1050 following Largade's speech, which coincided with PMI data indicating that economic activity around the Eurozone slowed moderately this month, but remains just above the mark that separates growth from contraction.
"The ECB's accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance remains in place", Largade said, referring to the Bank's zero interest rate lending base, the re-start of its €2.5 trillion quantitative easing program and the 50 basis point negative rate charge it applies to overnight deposits from lenders within the region.
"As laid out in the ECB's forward guidance, monetary policy will continue to support the economy and respond to future risks in line with our price stability mandate. And we will continuously monitor the side effects of our policies," she added.
The reaffirmation of the ECB's central policy theme -- that low inflation will guide future decisions -- could lay to rest any speculation that Largarde's tenure in Frankfurt will differ from that of Draghi's, who controversially led the Bank into both its quantitative easing and negative rate strategies despite stiff resistance from officials in Berlin and elsewhere.
It's also likely to stoke the ire of President Donald Trump, who has accused the ECB, as well as central banks around the world, of using negative rates and easy monetary policy to cheapen their currencies in order to make their domestic exports more attractive on world markets.
Earlier this month, during an address to the Economic Club of New York, Trump touted a litany of financial market achievements during his first two years in office, adding they came about "despite a near-record number of rate increases and quantitative tightening by the Federal Reserve since I won the election."
"Remember, we are actively competing with nations who openly cut interest rates so that now many are actually getting paid when they pay off their loan - known as negative interest," he incorrectly explained. "Who ever heard of such a thing? Give me some of that. Give me some of that money. I want some of that money. Our Federal Reserve doesn't let us do it."