2024-01-17 15:38:00
This is a media release that will please borrowers who have seen their cost of debt soar due to the tightening of monetary policy. In an interview with Bloomberg Television in Davos, Christine Lagarde was asked regarding the hypothesis that a majority of members of the ECB Governing Council would decide on a rate cut this summer, or even by summer. “ I would also say that it is also likely “, declared Christine Lagarde. A response loaded with significance since until now, the president of the guardian of the euro refused to talk regarding a possible future decline.
As a reminder, to combat inflation, accentuated by the rise in energy prices following Russia’s invasion of Ukraine, the ECB embarked on an unprecedented cycle of raising interest rates , carrying out ten increases in a row, bringing them from 0% at the start of 2022 to 4 and 4.75%, before taking a break in October.
ButInvestors are now betting on an easing of rates from the spring. Money markets are currently expecting a decline of 150 basis points over the whole year.
Falling inflation “on track”
And for good reason, inflation, which was above 10% in the summer of 2022, stood at 2.9% in December in the euro zone. If the month of December saw a slight rebound following the 2.4% in November, Christine Lagarde nevertheless affirmed that inflation was ” on the right track “but it was too early to declare victory. In the euro zone, the ECB is indeed counting on an increase in prices of 2.7% in 2024, 2.1% in 2025, then 1.9% in 2026.
“On the underlying trend, the pressure has clearly returned to the price of goods in particular, affirmed, in fact, in an interview with La Tribune this Wednesday, Christophe Barraud, chief economist of Market Securities. Inflation might converge towards the ECB target of 2% by the third quarter. China is in a deflation phase. Despite rising freight costs, this deflation from China helps offset recent increases in inflation.”
However, one element might continue to weigh on prices, pushing them up: wages: “ Employees have lost purchasing power during 2021 and 2022 and there is now a catch-up effect in the negotiations taking place “, explained Christine Lagarde. To compensate for inflation, salary increases are, in fact, negotiated in companies and administrations in the euro zone, under the watchful eye of the ECB which awaits ” to find out more (…) in April or May » to decide on a possible easing of its monetary policy, explained the president of the institution.
The risk of going too fast
« But I have to remain reserved, because we also say that we depend on data and that there is still a level of uncertainty and certain indicators that are not anchored to the level where we would like to see them “, she qualified. Interest rates have certainly reached a ” pic “, more ” we must maintain restrictive policy for as long as necessary to ensure that we get to a state where inflation does not exceed 2% in the medium term ».
« The risk might be that we move too fast and have to go back to a greater tightening, because we would have ruined the efforts that everyone has made over the last fifteen months “, she warned.
A speech which corroborates that of Philip Lane, the ECB’s chief economist. « Once we have gained sufficient confidence in our ability to achieve our goal of 2% inflation, the issue of rate cuts will come to the fore. But for now, we only have conjectures, and we will have to wait for new data to be published before going further. “, he said on January 14, during a conference in Dublin, Ireland.
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