ECB's Lagarde warns of persistent economic uncertainty despite recent progress
Christine Lagarde, the President of the European Central Bank (ECB), stated that the bank has achieved its aim of controlling prices. However, Lagarde pointed out that even with this, there are still some uncertainties about the future.
During an interview with Danish broadcaster DRTV that aired on Saturday, September 20, the ECB president urged other banks to make sure their interest rates focus on a target inflation level, which, according to her, they aimed at and now have successfully achieved.
Lagarde acknowledges uncertainty, sparking debate
The future has become predictable since the European Union struck a deal with the US on raising tariffs. Yet, it is surrounded by more uncertainties than in the era when US President Donald Trump began implementing his trade taxes.
Concerning this, Lagarde shared an analysis highlighting that from where they were, the level of uncertainty has decreased by around 50%, marking a significant improvement. However, she expressed that uncertainty still exists and called on everyone to cope with it.
In the meantime, reports from reliable sources revealed that the ECB kept borrowing costs steady for the second time last week after actively applying strategies to reduce them by a quarter-point eight times over the year.
After witnessing the ECB’s achievement, officials have speculated that inflation will settle at the 2% target after a slight decline next year. Additionally, they expect economic growth to revive in the forthcoming months.
These remarks were made after several officials expressed that, in the current situation, they believe additional easing is unnecessary unless the economy faces a profound impact.
On the other hand, some have highlighted that they feel that additional measures should be ruled out.
Analysts speculate no further cuts this cycle amid ECB’s recent decision
The ECB’s decision to keep borrowing costs steady for the second time was triggered by its belief that inflation pressures are under control and economic uncertainties are reducing. This made investors conclude that there will be no more cuts.
This was after reports dated September 11 highlighted that the deposit rate remained at 2%, just as several economic analysts had expected. The policymakers, however, did not provide any information about future actions. This emphasized that they will likely make decisions using new data, focusing on one meeting at a time.
During a press conference in Frankfurt, Lagarde weighed in on the situation. The ECB president stated that inflation is at a level they had long awaited, adding that the price outlook is more uncertain than usual because of the unstable nature surrounding the trade environment.
Lagarde also pointed out that economic growth risks have become more balanced. She further acknowledged that recent trade agreements have contributed to reduced uncertainties, but highlighted that if trade relations worsen, they could hurt exports and discourage investments and spending.
In response to Lagarde’s comments, traders began reducing their bets on more interest rate cuts. Moreover, the current market’s expectations suggest that there will be no further cuts this cycle.
The situation caused European bond yields to surge, with the German 10-year yield rising by three basis points, hitting an all-time high of 2.69%. On the other hand, the euro gained value against the dollar, soaring to $1.174 amid the dollar’s weakness.
Considering the situation, several officials have highlighted that they believe the current rates are a position to handle the effects of Trump’s threatening trade tariffs, geopolitical issues, and the recent renewed political instability in France, which has resulted in unsettled markets.
Meanwhile, analysis from sources points out that economic growth in the 19-country euro zone remains stable while inflation rates, which have slightly increased above the 2% target, remain manageable.
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