Christine Lagarde, the president of the European Central Bank, is confident that inflation will return to 2%, the objective set by the institution. Recent developments on prices in the euro zone reinforce our confidence that inflation will return to target in due time “, she declared during a hearing at the European Parliament. “ We will take this into account at our next monetary policy meeting in October”, decisive for setting the level of interest rates, added the central banker.
To date, the ECB forecasts a return of inflation in the euro zone to 2%, by the end of 2025, but Christine Lagarde’s statements on Monday suggest that this could happen more quickly. In September, the disinflationary trend accelerated in Germany (1.6%) as well as in France (1.2%), Italy (0.7%) and Spain (1.5%), still in annual variation. While the figure for the euro zone will be known on Tuesday, analysts surveyed by Factset expect a drop to 1.8%, after 2.2% in August.
The ECB confirms its cycle of lowering key rates
« It is probable » that the inflation figure in September “ or close to 2% » and let it be so « below the base scenario » of the ECB, included in its economic projections which determine its monetary course, according to Christine Lagarde. This indicates that “ the fight against inflation is progressing and the process of disinflation is underway “, she commented, even if inflation is likely to once again ” temporarily increase in the fourth quarter » this year, because previous sharp falls in energy prices will no longer be taken into account in the annual rates, she warned.
Towards a further rate cut in October?
Enough to reinforce the expectations of observers, already numerous, who now consider a further reduction in rates likely when the guardians of the euro meet on October 17. A month ago, experts were instead counting on the next monetary easing in December, during the last meeting of the year.
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Indeed, in September, the European Central Bank lowered its rates for the second time. In detail, the deposit rate, which is a benchmark because banks still have abundant liquidity provided by the ECB during the crisis years, was reduced by 25 basis points to reach 3.50%. The ECB has thus influenced the conditions on which banks lend to each other, offering a slight breath of fresh air to ease tensions on household real estate credit and business loans.
The guardians of the euro had already lowered rates in June for the first time in five years, after a phase of unprecedented credit increases to combat exceptionally high inflation, notably following the Russian war in Ukraine.
But the policy of small steps faces criticism among those who say the ECB acts too late and too slowly, harming the economy. Monetary policy stays unnecessarily and for too long in the restrictive zone. This is not good news for the euro zone, whose growth dynamic is currently only in one direction – that of decline. », Commented Eckhard Schulte, analyst at MainSky Asset Management, in September.
In the United States: the Fed lowers its rates
Across the Atlantic, the American Federal Reserve (Fed) also announced a drop in its rates on September 18 by half a percentage point, a first since 2020, to 4.75-5.00%. This important decision by the Fed came less than two months before the American election, which will pit Democrat Kamala Harris against Republican Donald Trump.
There was no room for doubt as to the launch by the institution of a cycle of monetary easing. Only uncertainty remained over the extent of this first drop since 2020. As a reminder, the Fed raised its rates to 5.25 to 5.50% to try to curb the surge in prices.
The Fed specified in a press release that it now has a “ greater confidencee” in the fall in inflation. The monetary institution also plans to further lower its rates by a total of half a point by the end of 2024.
(With AFP)
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