Christine Lagarde downplayed expectations of an imminent rate cut in the eurozone and reiterated that despite the cut in inflation estimates, borrowing costs would remain at their current record levels. We are determined to return inflation to 2% in the medium term, the head of the ECB said, which is expected to happen in 2025, according to Money Review, quoted by Rador Radio Romania.

The ECB left interest rates unchanged but made no hint of a possible rate cut in its statement, stressing instead that inflation may soon pick up and price pressures remain strong, mainly due to labor costs.

Christine Lagarde’s statements were on the same wavelength as the ECB’s statement, which showed that she is in a recovery phase after COVID, also evident by the low tone of her voice and the cough she had. “Should we be less careful? We asked ourselves that. No – under no circumstances should we lower the level of caution,” she said at a press conference following the ECB’s decision.

“We did not discuss lowering interest rates at all. Not a word, not a word, she said categorically. Admitting that price pressures are easing, Lagarde said domestic inflation, driven largely by wage costs in the 20 countries that use the euro, “is not coming down.”

“We need a better understanding of what’s going on there,” Lagarde said, referring to wage dynamics and the extent to which any additional wage increases would be absorbed by companies. Also, despite the slowdown, inflation is expected to pick up again in December.

At the same time, Lagarde spoke about geopolitical risks, mainly due to the conflicts in Ukraine and Gaza, as well as the risk of stimulating demand if monetary policy abandons the tightening line. She again asked the governments to cancel the support measures, so that the budget policy moves within a stricter framework.

When asked about the Fed’s signal of a rate cut in 2024, she said only that the ECB’s decisions depend on dates, not time frames, and therefore declined to provide a timetable for interest rate developments.

Echoing ECB experts’ forecasts, Lagarde also said headline inflation would average 5.4% in 2023, 2.7% in 2024, 2.1% in 2025 and 1.9% in 2026. Compared to the experts’ September forecasts, they have been revised downward for 2023 and especially for 2024.

In addition, Lagarde said that the ECB does not foresee a recession in the eurozone, clarifying that it is not about specific countries. In particular, in its new forecasts, the ECB predicts a recovery in economic growth from an average level of 0.6% in 2023 to 0.8% in 2024 and 1.5% in 2025 and 2026.

Finally, she also said that interest rates are not related to the PEPP (Pandemic Emergency Purchase Program) program or to plans to reduce reinvestment by an average of 7.5 billion euros per month in the second half of 2024. moreover, these reinvestments will come to a complete stop at the end of the year – as planned. “We believe it served its purpose,” Lagarde said, explaining that it was an emergency program, especially during the pandemic.