Lagarde says ECB will continue to cut interest rates

European Central Bank President Christine Lagarde said Monday eurozone policymakers would further cut interest rates if inflation continues to fall on its path towards the ECB’s two-percent target.

“If the incoming data continue to confirm our baseline, the direction of travel is clear and we expect to lower interest rates further,” Lagarde said in a speech at the Bank of Lithuania.

The ECB cut rates again last week as inflation looked to be coming under control and the eurozone economy showed signs of weakness.

The quarter-point move was the Frankfurt-based central bank’s third cut in a row and its fourth since June.

The easing cycle has brought the ECB’s key deposit rate down to three percent from an all-time high of four percent.

The central bank’s stance remained “restrictive”, Lagarde said, meaning it would act as a brake on business activity in the eurozone — the ECB’s main lever for tamping inflation.

The central bank, however, has been loosening its monetary policy and softening its messaging as consumer price pressures dissipate.

“Even though we are not there yet, we are close to achieving our target” of two-percent inflation, Lagarde said

Inflation in the eurozone stood at at 2.3 percent in November, having hit highs of over 10 percent in late 2022.

And in new economic projections published last week, the ECB said it expected the inflation rate to decline to 2.1 percent in 2025 and 1.9 percent in 2026.

There was now a greater risk that inflation would fall even further due to a “weaker-than-expected growth outlook” and “geopolitical events”, Lagarde said.

If the United States took a protectionist run on trade under President-elect Donald Trump, “growth in the euro area is likely to take a hit”, she said.

At the same time, “a rise in geopolitical tensions could push energy prices and freight costs higher in the near term”.