Lagarde dashes hopes for interest rate cuts in spring

Contrary to what the markets expect, the ECB will not cut interest rates in the coming quarters. Inflation may rise again, chairwoman Lagarde warns.

Inflation in the euro zone fell to 2.9 percent in October, but that should not be regarded as an achievement, said Christine Lagarde, the president of the European Central Bank (ECB), at a Financial Times event in London. It cannot be ruled out that inflation will increase again in the coming months, because it is uncertain how energy prices will evolve.

The ECB believes that inflation will not return to its target until well into 2025. In 2024, inflation would stagnate around 3 percent.

With her statements, Lagarde puts to rest speculation that the ECB’s next step – after ten consecutive rate increases and an interest rate pause in October – will be an interest rate cut, which could possibly come as early as April.

If inflation rises again, according to Lagarde, this does not mean that a new interest rate increase will be necessary, but that interest rates will have to remain at the current level of 4 percent for some time to come. “We are at a level where we believe that – if we hold on long enough – we will achieve our medium-term target of 2 percent inflation.” Asked what she means by “long enough,” she said no change should be expected “in the coming quarters.”