“The goal is in sight, but I won’t tell you that inflation has already been defeated,” Lagarde said in an interview with the French newspaper Le Monde published on Thursday.
However, the central banker remained convinced that inflation would reach the targeted target of 2 percent sustainably and permanently over the next year, provided “there is no major shock”. Lagarde thereby confirmed previous statements.
Inflation has recently risen again in major economies in the Eurozone. In Germany, the euro zone’s largest economy, the inflation rate rose surprisingly significantly to 2.0 percent in October, from 1.6 percent in the previous month. Some economists are therefore warning against the ECB cutting interest rates too quickly.
Interest rate turnaround announced in June
The ECB last reduced the benchmark deposit interest rate by 0.25 percentage points to 3.25 percent in October. It was the third interest rate hike this year after the central bank announced the interest rate turnaround in June following the major wave of inflation and a sharp rise in interest rates. Many economists expect another rate cut at the next interest rate meeting in mid-December. There were also calls from the ranks of the ECB for a significant interest rate cut of 0.5 percentage points.
The day before, Deutsche Bundesbank President Joachim Nagel urged restraint with regard to future interest rate decisions. “I advise you to remain cautious and not rush into anything,” said Nagel on Wednesday evening at an event in Frankfurt, according to the text of the speech.
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**Interview with Dr. Anna Schmidt, Economist and Financial Analyst**
**Editor:** Thank you for joining us today, Dr. Schmidt. With the recent announcement from the European Central Bank (ECB) regarding interest rate cuts, what do you make of President Christine Lagarde’s statement that while inflation may be in sight, it hasn’t been defeated yet?
**Dr. Schmidt:** Thank you for having me. Lagarde’s perspective is quite pragmatic. She’s right to emphasize that while there’s optimism about reaching the 2% inflation target sustainably over the next year, the journey is far from over. It’s crucial to recognize that inflation can fluctuate due to external shocks—like geopolitical tensions or supply chain disruptions—which could derail this progress.
**Editor:** That’s a good point. Lagarde mentioned that inflation rates have risen again in some major Eurozone economies, like Germany. What could this mean for the ECB’s decision-making process?
**Dr. Schmidt:** Exactly. The unexpected rise in Germany’s inflation to 2.0% in October raises red flags, especially as it deviates from the general downward trend expected after previous interest rate hikes. This situation might lead the ECB to exercise caution regarding further cuts. The balance between encouraging growth and controlling inflation is delicate, and they must tread carefully.
**Editor:** Speaking of cuts, the ECB has already reduced rates three times this year and discussions are happening around another possible cut in mid-December. Do you think this is the right strategy?
**Dr. Schmidt:** It’s a double-edged sword. On one hand, lower interest rates can stimulate economic growth, which is essential given the current economic climate. On the other hand, if inflation starts to rise significantly again, cutting rates aggressively could exacerbate the issue. The calls from figures like Deutsche Bundesbank President Joachim Nagel for restraint highlight the need for a more cautious approach. It’s crucial for the ECB to communicate clearly and ensure that any decisions are data-driven.
**Editor:** What advice would you give to businesses and consumers in light of these developments?
**Dr. Schmidt:** For businesses, it’s important to remain adaptable and prepare for potential changes in borrowing costs. Keeping an eye on the latest economic indicators and ECB communications will be vital. For consumers, it might be wise to think critically about long-term debts and understand how fluctuating interest rates could impact mortgages or loans. Being informed and cautious is key in today’s economic landscape.
**Editor:** Thank you, Dr. Schmidt, for your insights. It’s clear that while some progress has been made in the fight against inflation, the situation remains fluid.
**Dr. Schmidt:** Thank you for having me. It’s always a pleasure to discuss these important issues.
