Christine Lagarde claims the ECB's hard line: “Inflation is slowing down. The drop in rates? We will act on the basis of the data”

From Strasbourg – After a year 2023 marked by “stagnant growth”, 2024 offers “more and more signs of trend reversal”. It is with these words of optimism that Christine Lagarde presents herself to the annual debate in the European Parliament, the last of this legislature. The subjects addressed by the President of the European Central Bank in her speech are different: asset purchase programs (PPE), financial measures to face the risks of climate change, the scenario of global uncertainty and the need of a more integrated policy. But the most anticipated words concern the fight against inflation and possible cuts in interest rates. “The ongoing disinflationary process – declared Lagarde addressing the deputies – must continue, the Governing Council must be sure that it will lead us in a sustainable manner towards our objective of 2%. We will continue to follow a data-driven approach to determining the appropriate level and duration of restriction. »

Hard line on prices confirmed

The last increase decided by the ECB dates back to September 2023, when the institution led by Lagarde raised interest rates to record levels: 4.50% on main refinancing, 4% on deposits, 4.75% on marginal loans. Since then, rates have remained unchanged, with some governments pushing for the ECB to officially begin the rate cut phase. “Looking ahead,” Lagarde said today, “we expect inflation to continue to slow.” However, the 2% target has not yet been achieved. And until then, the ECB seems determined to postpone the cut in interest rates. Lagarde's words in Strasbourg today are a first indication of what could happen at the next meeting of the ECB board, which meets in March to decide whether to increase, reduce or leave interest rates unchanged. “Wage pressures” from those who have seen their purchasing power reduced and are now demanding greater protection are also helping to hinder the path to reducing inflation. Over the coming quarters, Largarde said today in Strasbourg, “wage growth is expected to become an increasingly important driver of inflation dynamics.”

The EU's financial priorities

Beyond the restrictive interest rate policy, Lagarde spoke enthusiastically in her speech about the new Stability Pact which, if respected, “will contribute to reducing high public debt and promoting structural reforms and public investments, also for the green and digital transitions. The priorities for the future indicated by the President of the ECB are those which have now been repeated like a mantra in Brussels and Strasbourg for several months: energy independence, climate change mitigation and digitalization. To face all these challenges while preserving “monetary sovereignty and economic prosperity”, Lagarde above all indicates one path: becoming more independent from abroad and “investing in the strategic autonomy” of the European Union.

Cover photo: EPA/Ronald Wittek | The President of the ECB, Christine Lagarde, during the plenary of the European Parliament in Strasbourg (February 26, 2024)

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