The president of the European Central Bank, Christine Lagarde, reaffirmed this week that rates in the euro area will remain restrictive while inflation works its way toward the 2 percent target in the medium term. Lagarde emphasized that the pace at which prices fall will depend on how the inflation trend evolves and on the persistence of underlying price pressures. This statement came as she opened a monetary policy conference organized by the ECB, underscoring that energy and food components continue to be highly volatile drivers of price dynamics in the region. As a result, the central bank maintains a cautious approach to further tightening, mindful of the domestic impact of rate moves on households and businesses across member states. [Source: ECB conference remarks]
Lagarde noted that future ECB decisions will hinge on the inflation outlook and the evolution of underlying inflation, alongside the broader risk picture. With energy and food prices remaining more volatile than other components, the central bank intends to calibrate its policy stance to ensure that rate increases translate into tangible moderation of demand in the real economy. In her words, the ECB’s guiding rate levels should, if sustained for a sufficiently long period, contribute meaningfully to steering inflation back toward the midterm target. The emphasis is on a data-driven path, adjusting to new information as it becomes available. [Source: ECB policy remarks]
Since July of the previous year, the ECB has raised policy rates by a total of 450 basis points, lifting the main deposit facility to 4.0 percent and the main refinancing rate to 4.5 percent. This tightening cycle reflects the bank’s commitment to anchoring inflation expectations and restoring price stability while avoiding unnecessary disruption to growth. The central bank continues to monitor incoming data on consumer prices, wage developments, and broader supply conditions to determine whether further moves are warranted. The aim remains clear: ensure that inflation converges toward the 2 percent objective over the medium term, thereby preserving monetary policy credibility for the euro area. [Cited: ECB policy trajectory data]