ECB’s Lagarde stands by comments on ‘likely’ summer rate cut
European Central Bank President Christine Lagarde reaffirmed her remarks that borrowing costs could be lowered from the summer (June), though said that officials aren’t yet discussing such a step.
“I certainly stand by them,” Lagarde told reporters after the ECB left its deposit rate at a record-high 4 per cent for a third meeting, as expected. “The consensus around the table of the Governing Council was that it was premature to discuss rate cuts.”
With markets still leaning toward a first reduction in April, the ECB is challenging the prospect of imminent easing. Recent weeks have seen pleas from the likes of the International Monetary Fund that central bankers around the world don’t loosen monetary policy too hastily, before inflation is overcome.
German bonds extended gains as Lagarde spoke and traders increased bets on rate cuts, pricing 138 basis points of easing this year from 130 basis points earlier.
ECB policymakers only see price growth returning to the 2 per cent target in 2025 and are on alert for renewed supply-chain snarls amid attacks on Red Sea shipping.
“Upside risks to inflation include the heightened geopolitical tensions, especially in the Middle East, which could push energy prices and freight costs higher in the near term and hamper global trade,” Lagarde said on Thursday (Jan 25) in Frankfurt. “We are being very careful and look attentively at the developments.”
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For reassurance that inflation is on a path back to the goal, officials want to see the results of Europe’s first-quarter wage deals and want to get a sense of how extensively firms are passing higher costs on to customers. That suggests no rate cuts before June.
Output in the 20-nation euro area, meanwhile, is faltering. Fourth-quarter data due next week may show a first recession since Covid struck, while Germany’s economy – the region’s largest – shrank by 0.3 per cent across 2023 as a whole.
“The euro area economy is likely to have stagnated in the final quarter of 2023,” Lagarde said, describing risks to growth as tilted to the downside. The situation is likely to improve as the year progresses, she said. BLOOMBERG
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