Lagarde Says Euro Gains Blunted Stimulus Boost to Inflation

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President Christine Lagarde said the recent appreciation of the euro has partly offset the positive impact that the European Central Banks stimulus had in boosting inflation and reiterated that policy makers stand ready to adjust all of their instruments if needed.

The Governing Council will carefully assess all the information coming from the euro-area economy, including developments in the exchange rate, with regard to their impact on the medium-term inflation outlook, she said on Sunday.

“When it comes to meeting our price stability goal, there is and there will be no complacency,” Lagarde argued in her remarks at the meeting of the Council of Governors of the Arab Central Banks and Monetary Authorities. “Monetary policy will continue to play its role in the euro area with full commitment to its mandate.”

Her comments show the predicament that the ECB is facing with the euro jumping more than 10% since March, and inflation below zero for the first time in four years.

Lagarde‘s cautious remarks on Thursday, when the central bank kept its stimulus settings on hold, failed to stop the currency’s gain. Chief Economist Philip Lane sought to toughen the tone on Friday, warning that the appreciation this year has dampened the outlook for price growth.

Finnish governor Olli Rehn followed up on Saturday, arguing that underlying price pressures in the euro area have stabilized at a low level that isn‘t in line with the ECB’s goal of inflation just below 2%.

Vice President Luis de Guindos called the exchange rate “one of the most important variables” in terms of macroeconomic performance, and said the institution is monitoring it closely.

The single currency opened little changed on Monday, trading at $1.1857 at 9:33 a.m. Frankfurt time. Earlier this month it crossed $1.20 for the first time in more than two years.

Delicate Balance

With their flurry of comments, ECB policy makers are attempting to strike a delicate balance between voicing concerns about the currency‘s surge and avoiding any impression that they’re deliberately trying to weaken the currency.

Read more: ECB Officials Walk a Fine Line in Struggle to Contain Euro Gains

Lagarde said on Sunday that the euro-area economic recovery has been strong, but also uneven, uncertain and incomplete. The challenging economic environment continues to weigh on underlying prices.

Despite the ECBs stimulus measures, such as its 1.35 trillion euro ($1.6 trillion) emergency bond-buying program, “other factors, such as the appreciation of the euro have partly offset the positive pull,” she said. “Near-term price pressures will also remain subdued due to the recent appreciation of the euro exchange rate.”

(Updates with exchange rate in eighth paragraph)