ECB’s Lagarde: It Would Be ‘Premature’ to Discuss What the Neutral Rate Is
30 January 2025

By Marta Vilar – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Thursday said that the Governing Council had not discussed what the neutral rate was as it was still early for this.
During the press conference following the meeting at which the ECB had decided to cut its three key interest rates by 25bp, Lagarde said that rates were still restrictive and that the central bank did not discuss r*.
‘[W]e have not had such discussion - because it would be premature at this point in time - about the point where we have to stop’, she said.
Asked about her acknowledgement of a lower upper range of the neutral rate estimate, Lagarde replied by announcing that the ECB would be releasing a new revision of the staff’s work on r* on February 7.
The ECB would use its staff analysis to consider where the neutral rate stands, but it would also take into account input from other sources, she said.
‘I know staff is going to work very hard on models, but we will be looking at all sorts of information, intelligence - you know the famous reference to “looking out of the window”’, she said, ‘we will also be looking out of the window.’
The direction of interest rates was clear for the ECB, but the pace, size and timing of future moves would be determined by the data and the staff’s analysis, according to Lagarde.
‘We’re lucky that for our next monetary policy meeting in March we will receive a projection prepared by the staff which will be informed by the economic environment as it unfolds, and we will have in the meantime two additional readings on inflation’, she added.
Regarding potential US tariffs, Lagarde said there were no clear and tangible movements to be included in the ECB’s analysis, but staff would incorporate whatever there was in the March projections.
‘I am not sure that there will be by March enough certainty to actually be very confident, I think we will still be plagued by uncertainty in that respect’, she added.
The ECB had not discussed a 50bp move in today’s Governing Council meeting, according to Lagarde, and the 25bp cut was backed by all members.
The euro area economy was not facing stagnation, but it was to remain weak in the short term, she said.
Despite acknowledging that a recovery was still to be expected, Lagarde repeated that risks were tilted to the downside with regards to growth.
The ECB was still confident that wage growth would slow in 2025 as all data were pointing downwards, she said.
Inflation was still expected to go down to 2% in the short term, she indicated.