The European Central Bank is increasingly confident that inflation will return to its 2% target, which should be reflected in its October decision, ECB President Christine Lagarde said on Monday.
The ECB cut interest rates by a record low in June and again earlier this month, but Lagarde has given little indication of the bank’s next move, leaving markets in doubt. ‘uncertainty.
Her comments on Monday will reinforce already heavy bets on a further decline in October, given the rapidly deteriorating growth outlook and falling energy costs.
“The latest developments reinforce our confidence that inflation will return to target in due time,” Lagarde told a parliamentary hearing in Brussels. “We will take this into account at our next monetary policy meeting in October.
This month, inflation in the 20-nation currency bloc likely fell below the ECB’s 2% target for the first time since mid-2021, according to a series of national data.
This, along with poor growth indicators, has increased bets on a 25 basis point rate cut in October and markets now see there as a 75% chance of this happening, up from 25% at beginning of last week.
Ms. Lagarde also acknowledged the recent string of poor growth results.
“Looking ahead, the low level of some survey indicators suggests that the recovery faces headwinds,” she told a regular hearing of the Economic and Monetary Affairs Committee.
However, she repeated the bank’s usual line that the recovery should strengthen and rising real incomes should allow households to consume more.
She added that the labor market, which is causing some price pressures due to rapid wage growth, remains resilient, even as wage growth moderates and corporate profits absorb some salary increases.
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