The European Central Bank (ECB) could start reducing interest rates this summer, its president Christine Lagarde said on Wednesday, while warning that this decision would depend on the latest economic data.
In an interview with Bloomberg Television in Davos, Christine Lagarde was asked about the hypothesis that a majority of members of the ECB Governing Council would decide on a rate cut this summer, or even by summer.
“I would also say that it is also likely,” Ms. Lagarde said. “But I have to remain reserved because we also say that we depend on data and that there is still a level of uncertainty and certain indicators which are not anchored at the level where we would like to see them,” she clarified.
An unprecedented cycle to combat inflation
To combat inflation, accentuated by the rise in energy prices following Russia’s invasion of Ukraine, the ECB embarked on an unprecedented cycle of raising interest rates, proceeding to ten increases in a rowbefore taking a break in October.
To compensate for inflation, salary increases are negotiated in companies and administrations in the euro zone, under the watchful eye of the ECB which is trying to bring inflation back to its target of 2%.
“The risk could be that we go too fast”
Christine Lagarde affirmed that inflation was “on the right track”, but that it was too early to declare victory. “Employees lost purchasing power during 2021 and 2022 and there is now a catch-up effect in the negotiations that are taking place,” explained Christine Lagarde.
THE salary negotiations will have an impact on the inflation rate, which has slowed down in recent months, and the ECB is waiting to “know more” “in April or May” to decide on a possible easing of its monetary policy, explained the president of the institution. Interest rates have certainly reached a “peak”, but “we must maintain a restrictive policy as long as necessary to ensure that we arrive at a state where inflation does not exceed 2% in the medium term”.
“ The risk could be that we go too fast and that we need to return to greater tightening, because we would have ruined the efforts that everyone has made over the last fifteen months,” she warned.
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