Further ECB rate cuts unlikely in near future, says Lagarde

The European Central Bank this week cut its main interest rates for the first time since 2019, but ECB chief Christine Lagarde is discouraging prospects of further cuts in the near future.

Inflation in the euro zone is “currently on track” to reach the ECB's 2% target, Lagarde wrote in an opinion piece for German newspaper Rheinische Post published on Saturday.

“However, it will take some time before inflation is completely banished from the economy,” Lagarde added, warning of obstacles ahead.

“All along the way, we will need to demonstrate vigilance, commitment and perseverance,” writes the President of the ECB.

“This is why interest rates must remain restrictive for as long as necessary to ensure long-term price stability. In other words: we have to keep our foot on the brake for a while longer, even if not as firmly as before,” Lagarde explained.

The ECB lowered its key interest rates by 0.25 percentage points on Thursday, which was the first rate cut after a series of hikes starting in July 2022.

The ECB cut its deposit facility, the rate banks receive for deposits, by 0.25 percentage points, to 3.75%, after nearly nine months at a record low.

It also announced a 0.25 percentage point cut in its rate for fixed rate tenders, the ECB's rate for lending to euro zone commercial banks, to 4.25%.

“The deciding factors for our future monetary policy decisions will be whether we can continue to see inflation return to our target in a timely manner, whether price pressure in the economy as a whole eases, and whether our monetary policy continues to effectively combat inflation,” Lagarde said.

“These factors will determine when it is time to ease the brakes further.”

Annual inflation in the euro zone is expected to be 2.6% in May, up from 2.4% in April, according to a recent estimate from Eurostat, the EU statistics agency.