European Central Bank (ECB) President Christine Lagarde, in her speech to the European Parliament’s Economic and Monetary Affairs Committee, expressed optimism about controlling inflation. Lagarde noted that recent developments had strengthened their confidence that inflation would return to the ECB’s target of 2%, adding that these developments would be considered in the ECB’s monetary policy meeting in October.
Discussing economic growth data, Lagarde recalled that the Eurozone had grown by 0.3% in the first quarter and 0.2% in the second quarter of 2024. She explained that growth was mainly driven by exports and public consumption, while domestic demand remained weak due to reduced household consumption, lower business investments, and a decline in housing investments. She also highlighted stagnation in the manufacturing and construction sectors, while the services sector showed signs of a slowdown.
Regarding inflation, Lagarde noted that inflation had been rapidly declining over the past two months, falling to 2.2% in August 2024, mainly due to reduced energy costs. She added that inflation was expected to decrease further in September, but the impact of lower energy prices on annual inflation might fade, potentially causing a slight increase in inflation in the fourth quarter. Nevertheless, she emphasized that the ECB remained confident in reaching the 2% inflation target.
Lagarde affirmed that the ECB would continue to take a data-driven approach to setting interest rates and would maintain restrictive policy rates as long as necessary to achieve the inflation target. While interest rate hikes had helped lower inflation, she stressed that the ECB was not committing to any predefined path for interest rates.
She also emphasized the need for the European Union (EU) to address structural challenges to enhance its competitiveness, advocating for further progress in the EU’s capital markets union and efforts to decarbonize the economy.
On September 12, the ECB lowered its deposit rate by 25 basis points to 3.50%, along with a 60-basis point reduction in the main refinancing rate and marginal lending rate, in line with market expectations. While the ECB confirmed it will not adhere to a specific interest rate path, some analysts predict further rate cuts continuing into mid-2025.
