Lagarde says ECB is getting more confident of taming inflation
It’s the strongest hint yet from her of possible momentum gathering among officials toward an interest-rate cut
CHRISTINE Lagarde said the European Central Bank is becoming more optimistic that it will be able to get inflation under control, and will reflect on that at its October decision.
The president’s comments to lawmakers in the European Parliament in Brussels on Monday (Sep 30), amount to the strongest hint yet from her of possible momentum gathering among officials toward an interest-rate cut.
“Inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates, but the latest developments strengthen our confidence that inflation will return to target in a timely manner,” Lagarde said. “We will take that into account in our next monetary policy meeting in October.”
The latest data on consumer prices, published earlier Monday, showed slowdowns in Italy and Germany, following numbers last week in Spain and France pointing in the same direction. That reinforces the idea that a historic spike in inflation has been contained.
The remarks are Lagarde’s first since business surveys last week by S&P Global revealed a much weaker-than-expected performance for the eurozone’s 20-nation economy. That prompted markets to ramp up bets on a second straight cut in borrowing costs on Oct 17.
“Looking ahead, the suppressed level of some survey indicators suggests that the recovery is facing headwinds,” Lagarde said. “We expect the recovery to strengthen over time, as rising real incomes should allow households to consume more.”
Following September’s decision to cut rates for a second time during this cycle, several Governing Council members indicated that they’d rather wait for more complete data on the economy before acting again. The question now is whether the deterioration in the growth outlook is enough to deviate from that path and bring forward monetary easing.
Investors currently price more than an 80 per cent chance of another cut next month. A growing number of economists, including those at Goldman Sachs and JPMorgan, also foresee a move. BLOOMBERG
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