ECB’s Lagarde signals pause in rate hikes to assess impact By Investing.com

ECB’s Lagarde signals pause in rate hikes to assess impact By Investing.com

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EUROPE – European Central Bank President Christine Lagarde has indicated a temporary halt in the tightening of monetary policy to assess the full impact of recent interest rate hikes. At a European Parliament hearing today, Lagarde underscored the ECB’s commitment to maintaining steady rates to support the economy’s return to its inflation target of around 2%. Despite a slight economic contraction in the third quarter and the lowest inflation rate in two years this October, Lagarde cited robust consumer spending as a likely cushion against recessionary trends in the Eurozone.

Addressing the European Parliament’s Committee on Economic and Monetary Affairs, Lagarde elaborated on the October inflation drop to 2.9%, highlighting the general decline and base effects. While non-energy and non-food inflation is showing signs of moderation, she noted that domestic pressures remain. The Eurozone is grappling with economic stagnation, with the third quarter GDP showing contraction and expectations of continued weakness due to higher interest rates, reduced foreign demand, and the diminishing impact of economic reopening.

The services sector is also showing signs of weakening, alongside manufacturing downturns, and there is an anticipated slowdown in job growth. However, Lagarde projected a long-term economic recovery bolstered by easing inflation, rising household incomes, and stronger export demand. She reaffirmed the ECB’s resolve to keep policy rates restrictive as necessary, basing future rate decisions on inflation trends and the effectiveness of monetary policy transmission.

In a statement, Lagarde cautioned against premature optimism about economic recovery, pointing to the ongoing weakness in the Euro area and the expected deceleration in job growth by year-end. The ECB remains focused on its price stability mandate amid strong wage pressures and uncertain inflation projections, even as inflationary pressures appear to be waning. Additionally, Lagarde mentioned the ECB’s future plans to further decarbonize corporate portfolios after 2024, aligning with broader environmental objectives.

Investors and policymakers are closely watching the ECB’s strategic moves as they balance the need for price stability with the risks of an economic downturn in the Eurozone.

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