Subscribe here: [ Ссылка ] ECB President Christine Lagarde reaffirms a data-driven approach to rate decisions while urging structural reforms, citing Mario Draghi's competitiveness report. The ECB lowered its deposit rate by 25 basis points, with inflation and growth forecasts largely unchanged.
European Central Bank (ECB) President Christine Lagarde reaffirmed a cautious, data-dependent approach to monetary policy, stressing that decisions would be made "meeting by meeting" based on economic data, without committing to a fixed rate path.
At its September meeting, the ECB cut its deposit facility rate by 25 basis points to 3.5%, as expected, stating that “it is now appropriate to take another step in moderating the degree of monetary policy restriction.”
However, Lagarde underscored that future policy moves remain uncertain and will depend on incoming economic indicators.
“Our interest rate decisions will be guided by the inflation outlook, incoming data, and the transmission strength of our monetary policy.”
The ECB’s September interest rate decision and economic outlook
Lagarde stated that the decision to lower the deposit facility rate by 25 basis points to 3.5% was taken unanimously.
Other key rates were adjusted as part of broader changes to the monetary policy framework, effective from 18 September.
Notably, the main refinancing operations rate was cut by 60 basis points to 3.65%, narrowing its spread to the deposit facility rate to 15 basis points. The marginal lending facility rate was similarly reduced by 60 basis points to 3.9%, preserving a 25-basis-point spread over the refinancing rate.
Regarding the economic outlook, recent inflation data has come in as expected, with ECB's new staff projections aligning with earlier forecasts.
Headline inflation is forecast to average 2.5% in 2024, 2.2% in 2025, and 1.9% in 2026, consistent with June's projections.
“Inflation is expected to rise again in the latter part of this year, partly because previous sharp falls in energy prices will drop out of the annual rates. It should then decline towards our target over the second half of next year,” Lagarde explained.
On the growth side, the eurozone economy is expected to grow by 0.8% in 2024, rising to 1.3% in 2025 and 1.5% in 2026, a slight downward revision due to weaker domestic demand over the coming quarters.
“The risks to economic growth remain tilted to the downside,” Lagarde said, adding that “credit growth remains sluggish amid weak demand.”
The ECB will meet again on 17 October, but Lagarde clearly refrained from making any speculations about future interest rate moves.
Focus on structural reforms
The core message of Lagarde’s press conference, however, was the need for European structural reforms to boost growth and productivity.
She praised Mario Draghi’s report on European competitiveness and Enrico Letta’s report on strengthening the single market, both of which underscore the urgency for reform and offer concrete proposals.
"It's a formidable report" that presents "a diagnosis which is severe, but which is just in our view," she said.
She added that it "points to structural reforms, practical proposals to achieve such structural reforms that could be extremely helpful for Europe to be stronger, but also for us as a central bank, to achieve better results in our monetary policy if productivity can rise as a result of the structural reforms."
"Structural reforms are the responsibility of the governments," she remarked.
Lagarde also emphasised the significance of the Capital Markets Union, stating, "It would be very good news for us if the Capital Market Union can be implemented and more financing be made available in order to finance innovation."
She linked these reforms to the ECB’s broader goals, noting they are beneficial "when it comes to inflation, price stability, and the components that underlie this work that we do."
Draghi's report, Lagarde stressed, includes a wide range of structural reforms that require strong governmental leadership, especially in the context of strengthening Europe’s sovereignty in challenging geopolitical circumstances.
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