By Marta Vilar – SINTRA, Portugal (Econostream) – European Central Bank President Christine Lagarde said on Wednesday that upside risks to inflation and downside risks to growth in the euro area had become “more broadly balanced” in recent weeks.
Speaking during a panel discussion at the ECB Forum on Central Banking in Sintra, Portugal, Lagarde said that “risks, […] that we have to the upside on inflation and to the downside on growth, are probably more broadly balanced than they were a few weeks ago as a result of what we’re seeing, which happens at speed.”
She said that the ECB’s decision to hike interest rates in June reflected an inflation outlook that had strengthened, with higher core inflation, underlying inflation indicators trending upwards and inflation projected to return to 2% only at the end of 2025.
She noted that this inflation outlook incorporated market expectations.
“You have the obvious decision, and it was so obvious that we had a unanimity decision within the Governing Council,” she said.
Asked about the ECB’s next policy moves, Lagarde again declined to provide forward guidance, saying she regretted having previously felt “bound and compelled by forward guidance.”
Instead, she said, the ECB now preferred to explain the framework underpinning its decisions, requiring market participants to assess incoming data rather than rely on pre-announced policy signals.
Recalling the June decision, Lagarde said policymakers had assessed the inflation outlook, incoming economic and financial data, the risks surrounding that outlook, underlying inflation measures and the transmission of monetary policy before deciding to tighten.
“We look at underlying inflation, various set of indicators, and we looked at the transmission of monetary policy,” she said. “So, it’s taking all that into account in the context of the supply shock that led us to the decision that we made.
Lagarde also rejected comparisons between the current environment and the stagflation of the 1970s, pointing to euro area unemployment remaining close to historical lows and labour market participation continuing to increase.
“[W]e are taking all the right steps to make sure that we have price stability,” she said. “We are not going to let inflation run, or the genius get out of the bottle, and inflation move up. We will take the necessary steps, and we have.”
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