ECB’s Lagarde: ‘Strong Likelihood’ that the Dialing-Back Phase Has Started

6 June 2024

By Isabel Teles – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Thursday said that the ECB was likely entering a period of reducing monetary policy restrictions after cutting interest rates by 25bp.

During the press conference following the Governing Council’s meeting, Lagarde said, ‘I cannot confirm that it is the dialling[-back] process that is underway’, she said. ‘There’s a strong likelihood, but it will be data-dependent and what is very uncertain is the speed at which we travel and the time that it will take. Again, this will be determined by the data that we receive.’

The robustness of recent staff projections for inflation in 4Q25, with minor variations around 2%, was key for the Governing Council’s decision to make the first move to cut interest rates, she said.

‘I think the second element that we took into account was the reliability and strength of our projections and there is one particular line of projections which to many of us was relevant’, she said. If you look at 4Q25 projections… there’s a variation between those projections of 0.1. Its either 2[%], or 1.9[%] and it’s on the basis of this reliability and solidity and the robustness of those projections that we have made that decision to actually cut.’

The confidence in the disinflation process had been increasing during the past months, even with volatility expected ahead, she said.

‘There are bumps on this road, but we are travelling with more confidence that the disinflationary path is actually materialising’, she said.

Still, the Governing Council would ‘need data and more data and analysis of those data to constantly confirm that we are on this disinflationary path’ to make further decisions, she said.

By cutting interest rates by 25bp, the ECB was moderating the level of restriction, but remained in a restrictive territory, she said, echoing Chief Economist Philip Lane in a recent interview.

Asked about the neutral interest rate, she said, ‘[W]e are not close to the neutral rate, so we still have a way to go.’