Lagarde starts reasoning on a rate cut, as long as it is “sustainable”

Brussels – Timidly, Christine Lagarde is starting to consider the possibility of an interest rate cut. The president of the European Central Bank implicitly admits this, as always being careful not to get out of line. Because markets are watching, investors are watching, and making promises implies exposing herself at a time that is still delicate and, therefore, requires the appropriate caution. However, according to the Eurotower chief, one can start thinking in other terms.
“​The current disinflationary process is expected to continue” in the coming months, Lagarde argued, speaking in the debate of the plenary session of the European Parliament in Strasbourg. If this were the case, the need to maintain a firm conduct of monetary policies would disappear. Translated: if inflation were to continue to decline, the rationale behind the decisions taken so far would cease to exist, and it could reverse the course of interest rate hikes conducted so far. It means interest rate cuts. It is possible if we are sure this is the case. “The Governing Council needs to be confident that it (the disinflationary process) will lead us sustainably to our 2% target.​” No promises from Lagarde, but a willingness to consider backtracking if and when conditions are right. The ECB president warns that compared to a process of reducing inflation, “​high energy prices and increased geopolitical instability are posing a threat to euro area competitiveness” as risk factors. The ECB will continue to rely on data and trends in the global environment. The central bank’s approach, therefore, does not change. There will be no increase in rates. They will be left at current levels (4,5 percent for main refinancing operations, 4.75 percent for the interest rate on the marginal lending facility, and 4 percent for the interest rate on the deposit facility), unchanged since October.