ECB’s Lagarde: Rate Direction ‘Pretty Obvious’, But Path Not Predetermined

12 September 2024

By Isabel Teles and Marta Vilar – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Thursday said that while the downward direction of interest rates was clear, the path was open.

Speaking at the press conference following the ECB Governing Council's decision to cut the deposit facility rate by 25bp, Lagarde resisted attempts to induce her to flag further easing later this year, insisting that ‘we are going to be data-dependent, we are going to decide meeting by meeting. I am not giving you any commitment of any kind, as far as that particular date is concerned, and our path is not predetermined at all’.

Lagarde refrained from saying that the October decision was open and was unwilling to note that the ECB would have more information at any particular future meeting relative to any other.

The direction of interest rates was ‘pretty obvious, a declining path’, she said, but the path was ‘not predetermined, neither in terms of sequence nor in terms of volume.’

The updated projections showing the 2% inflation target still expected to be reached by the end of 2025 reinforced the ECB’s confidence on the outlook, she said.

‘When you look at the incoming information, it confirms our previous projections and it comforts us in our confidence that we are heading towards our target in a timely manner. So during the course of ‘25, in particular, inflation will decline towards our 2% target’, she said.

Declining services inflation during 2025 would help, according to Lagarde.

‘What staff had anticipated, which is moderation of wage growth, buffering of wages costs by slightly declining profit, and increase of productivity, is actually being demonstrated by numbers, by observation’, she said.

Economic growth, revised downwards for 2024, 2025 and 2026, was continuing to face headwinds, but would still strengthen over time, she said.

Asked about the neutral rate, she called it an ‘unobservable concept’ that would become clearer as policy approached it.

‘Staff has produced a very good paper on r* which indicates it is probably a tad higher than where it used to be, but I’m not endorsing this. As we get closer to it we will know better whether we are there’, she said.