La ECB leaves interest rates unchanged for the first time since July 2022, but the mantra “higher rates for as long as necessary” remains to ensure inflation “returns to the medium-term target of 2% in a timely manner”. The president of the European Central Bank said this Christine Lagarde of press conference at the end of the board meeting held in Athens. The number one of the ECB therefore did not want to specify how long this phase will be high rates, but he specified that the idea of a cutting "It's totally premature." And she added: “We're on break now but that doesn't mean we don't we will rise again” and we will continue “to follow a data-driven approach”.
Lagarde: “The economy will remain weak for the rest of the year”
THEeconomy of the euro area remains weak, while manufacturing sector output continues to decline and there are signs that the labor market is weakening. As well as the service sector. It is the picture painted by Lagarde. “This is mainly because weakening industrial activity is spilling over to other sectors, the momentum from reopening effects is fading, and the impact of rising interest rates is broadening. The economy is likely to remain weak for the rest of the year. However, with inflation falling further, real household incomes recovering and demand for euro area exports recovering, the economy is expected to strengthen in the coming years.”
Lagarde: "Inflation still too high"
“It is still expected that theinflation remains too high for too long a period of time. Furthermore, strong internal pressures on prices continue. At the same time, inflation recorded a sharp decline in September, also attributable to strong base effects, and most measures of underlying inflation continued to decline", continued Lagarde, highlighting however the price increases of the prices energy in light of new geopolitical tensions.
Downside risks to the economy
For the president of the ECB, i risks for the 'economy they remain at fall. “Growth could decline if the effects of monetary policy prove stronger than expected. A weaker global economy would also weigh on growth,” Lagarde said, citing geopolitical tensions from the war in Ukraine and the crisis in the Middle East. “This could cause businesses and households to become less confident and more uncertain about the future, further dampening growth. Conversely, growth could be higher than expected if the still resilient labor market and rising real incomes cause people and businesses to become more confident and spend more, or if the global economy grows more than expected."
Price pressures remain strong
While the risks for theinflation “could result from increases in energy and food costs. Heightening geopolitical tensions could cause energy prices to rise in the short term, making medium-term prospects more uncertain. The ongoing climate crisis could cause food prices to rise more than expected. A sustained increase in inflation expectations above our target, or higher-than-expected increases in wages or profit margins, could also push inflation higher, even over the medium term. Conversely, weaker demand – for example due to greater monetary policy transmission or a worsening economic environment in the rest of the world in the presence of greater geopolitical risks – would alleviate price pressures, especially in the medium term”.
