Lagarde resists increasing interest rate anticipation.
The change in direction for interest rates is approaching, but the ECB won't lower them abruptly. Their president believes the inflation situation is heading in the right direction, but there's still much work left to be done: "Our battle against inflation remains unfinished."
In a contribution to the "Rheinische Post" newspaper, Christine Lagarde, the president of the European Central Bank (ECB), has played down expectations for soon-to-come aggressive interest rate reductions. Inflation in the eurozone is expected to "hit two percent at the end of next year," she says. "Nevertheless, it will still take a considerable amount of time and energy before inflation is completely eradicated from the economy."
According to Lagarde, "cautiousness, effort, and tenacity will be needed during this process." She advises that interest rates "should stay tight enough for as long as necessary to guarantee price stability in the long run." "We need to keep our foot on the brakes for a bit longer, although not quite as firmly as before."
The ECB's next steps in monetary policy decisions will hinge on "whether we can continue to observe that inflation returns to our target level quickly, the overall pressure in the economy dwindles, and our monetary policy remains effective against inflation." When it's the right time "to ease the pressure a bit more," Lagarde writes, depends on these factors. They've taken "notable steps forward," but their fight against inflation is "not over yet."
In an unexpected move on Thursday, the ECB made the first shift in policy in almost five years by reducing rates by 0.25 percentage points. The central rate, which banks can borrow money from the ECB, has now been set at 4.25 percent.
