Lagarde’s speech following ECB rate cuts

Following the European Central Bank’s (ECB) announcement of a 25-basis-point reduction in borrowing costs on Thursday, with the battle against high inflation, President Christine Lagarde highlighted key points in a news conference.

Growth Risks: Lagarde noted that while short-term economic growth risks are balanced, medium-term risks are skewed to the downside, with potential threats from a weaker global economy or escalating trade tensions affecting euro area growth.

Inflation Confidence Increasing: The ECB’s confidence in its inflation management strategy has grown in recent months.

No Commitment to Rate Path: Lagarde emphasised that the ECB is not committing to a specific rate path at this time.

Inflation Risks: Lagarde pointed out that stronger-than-expected global economic growth or heightened geopolitical tensions could drive inflation higher than anticipated.

Inflation Outlook: Inflation is expected to hover around current levels for the remainder of the year due to energy-related base effects before declining towards the ECB’s target in the second half of next year. Domestic inflation remains high, with wages rising at an elevated pace, partly due to staggered wage adjustments and one-off payments.

Wage Growth: Forward-looking indicators suggest that wage growth will moderate over the year.

Diminishing Price Pressures: Recent data confirms a gradual reduction in price pressures.

Supportive Exports: Stronger exports are expected to support growth in the coming quarters.

Economic Recovery: The ECB expects the economy to continue recovering, driven by higher wages and improved terms of trade, boosting real incomes.