Lagarde promises low inflation ‘in due course’ and says weak growth is not a recession

The President of the European Central Bank (ECB) promised this Friday inflation below 2% “in due course”, without committing to raising interest rates, and noted that weak growth in the eurozone “is not a recession”.

“We want to get back to our medium-term target of 2%. [de taxa de inflação] and we will return to this goal in due time,” Christine Lagarde said at a press conference after an informal meeting of European finance ministers in the Spanish city of Santiago de Compostela as part of the Spanish Presidency of the Council of the EU.

A day after the new increase, the person in charge emphasized: “Our mission is price stability, our fight is against inflation, and our main tool in these circumstances is interest rates, so […] We have decided to raise interest rates again by 25 basis points to consolidate progress towards achieving our goal of winning the battle against inflation.”

At a time of timid economic growth, weak consumption amid tight monetary policy and still high inflation, Christine Lagarde reiterated that the ECB “will set interest rates at a fairly restrictive level for as long as necessary to achieve the 2% target.” .

Already referring to the latest data, which led to a downward revision of the eurozone growth rate, the ECB leader noted that the single currency area “will not grow as much as previously expected, but will recover in 2024,” so “weaker growth” will not means recession.”

Christine Lagarde also called on member states to “focus on reducing deficits and debt, which makes it even more important to spend the money the right way,” that is, on green and digital investments.

Also speaking at the press conference, Eurogroup President Paschal Donohoe stressed that “fiscal policy must be prudent, it must be cautious, it must follow a restrictive orientation and it must work in accordance with the changes that are being made in the EU.” level of monetary policy.”

Eurozone finance ministers today discussed the macroeconomic context in the single currency area and should press ahead with commitments to fiscal prudence following further ECB interest rate hikes.

Today’s discussion comes a day after the ECB announced a new hike of three key interest rates by 25 basis points, the same as at the previous meeting, placing the deposit rate at the highest level in the euro zone’s history.

It was the 10th straight rate hike by the central bank, which has raised interest rates by 450 basis points since July last year, the fastest growth cycle in euro zone history.

In its summer macroeconomic forecasts published last Monday, the European Commission revised down its forecast for eurozone inflation this year to 5.6%, saying tight monetary policy was “working” but warned of revenue losses and downgraded its forecast for 2024 year. .

Also on the same day, the institution announced that the “very weak” economic activity of recent months in the eurozone and EU, which is expected to persist, has led to downward revisions to economic growth forecasts in 2024 to 1.3% and 1.1 %. .4%.

Inflation rates have fallen in recent months from historic highs due to the economic reopening from the Covid-19 pandemic, the energy crisis and the economic fallout from the war in Ukraine, but are still above the 2% target. ECB for price stability.

To achieve this, the ECB has tightened monetary policy, consistently raising interest rates, but now at a slower pace.