Financial News: ECB's Lagarde Says Eurozone Remains In 'A Good

ECB's Lagarde Says Eurozone Remains In 'A Good Place', Risks More Balanced

(RTTNews) - European Central Bank President Christine Lagarde tread carefully on Thursday as she attempted to paint a rosier view for the euro area economy without dismissing the impact of the lingering uncertainty linked to the trade tariffs, the political turmoil in France and a stronger euro.

The central bank for the 20-nation single currency economy left <a href=https://www.rttnews.com/3573481/ecb-holds-rate-steady-as-expected-trims-2026-growth-projection.aspx target=_blank >key interest rates unchanged for a second policy session</a> in a row but offered no signals as to where interest rates are headed in future.

The Governing Council, led by Lagarde, held the deposit rate steady at 2.00 percent. The refinancing rate was left unchanged at 2.15 percent and the marginal lending rate at 2.40 percent.

Eurozone interest rates were last revised in June when they were reduced by 25-basis points. The bank had cut interest rates by a quarter basis points each in every rate-setting session since September last year.

"We continue to be in a good place," Lagarde told reporters during the post decision press conference.

The ECB Staff slightly raised the headline inflation projections for the euro area for this year and next to 2.1 percent and 1.7 percent, from 2.0 percent and 1.6 percent forecast in June. Inflation is expected to average 1.9 percent in 2027, which is lower than the June projection.

Core inflation, which excludes energy and food, was expected to average 2.4 percent this year, 1.9 percent next year and 1.8 percent in 2027. These were unchanged from June.

"The outlook for inflation remains more uncertain than usual, as a result of the still volatile global trade policy environment," Lagarde said in her statement. "A stronger euro could bring inflation down further than expected."

The Eurozone economy was projected to grow by 1.2 percent this year, which was faster than the 0.9 percent expected in June. The growth projection for next year was trimmed to 1.0 percent from 1.1 percent, while the projection for 2027 was unchanged at 1.3 percent.

"Risks to economic growth have become more balanced," Lagarde said.

While the U.S. and the EU have reached some understanding on trade tariffs, more clarity is needed on agreements between the Trump administration and key trade partners such as China and India. A possible interest rate cut from the Federal Reserve, which will be the first this year, is also set to influence the macroeconomic outlook. Moreover, the political instability in France is also causing worry for policymakers.

<a href=https://www.rttnews.com/3570992/eurozone-inflation-path-suggests-ecb-unlikely-to-cut-rates-further.aspx?refresh=1 target=_blank >Eurozone inflation has been hovering around the 2.0 percent</a> target in recent months as pressures from food prices and services costs ease.

Quizzed about the prospect of more easing, Lagarde reiterated that the bank does not follow a "pre-committed" path. The bank will stick to its data-dependent and meeting-to-meeting approach, she added.

Lagarde said she was neither a hawk nor a dove when it came to monetary policy but called herself "an owl".

"Lagarde dampened any remaining rate cut hopes by pointing to the surprisingly strong economic growth or downplaying the long-term inflation forecast below 2 percent," Commerzbank economist Jörg Krämer said. "All in all, the scenario of an unchanged deposit rate of 2.0 percent remains the more likely outcome."

"With growth holding up better than expected core inflation above the 2 percent target due to sticky wage growth, and the outlook for fiscal easing in 2026 we do not expect the ECB to deliver a final cut in the coming six months, contrary to market expectations," economists at Danske Bank said.

"At the same time, we believe hikes in 2026 are premature due to inflation most likely being below target by then and the German economy having sufficiently room to increase production without fueling inflation," they added.

In the U.S., the Federal Reserve is widely expected to lower the federal funds rate next week amid high inflation and a cooling labor market.

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