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- ECB likely to cut rates in summer, Lagarde says in Davos
ECB likely to cut rates in summer, Lagarde says in Davos
- Christine Lagarde will participate in the World Economic Forum, in Davos.
- ECB President’s speech will be scrutinized for fresh insights on the economy and policy.
- European Central Bank held rates for the second straight meeting in December.
Christine Lagarde, President of the European Central Bank (ECB), is set to speak on Wednesday at 15:15 GMT at the World Economic Forum (WEF), in Davos. It will be the first of her three appearances at the WEF Annual Meeting this week.
Lagarde is due to participate in a town hall titled "How to Trust Economics" on Wednesday, followed by a panel discussion titled "Uniting Europe's Markets" on Thursday. On Friday, the ECB President will be part of a panel discussion on "The Global Economic Outlook."
Wednesday’s town hall is likely to be an interactive event, with Lagarde expected to share her thoughts on how to ensure long-term and equitable growth while adapting to new economic realities. She might touch upon the topic of monetary policy and inflation during her commentary on the economic outlook.
Ahead of that event, Lagarde already spoke on the sidelines of the WEF Annual Meeting in Davos, suggesting in a Bloomberg interview that “it is likely that we will cut rates by the summer.”
Christine Lagarde’s remarks still will be closely scrutinized for affirming the pace and the timings of the interest rate cuts expected in the second half of this year. Money markets are currently pricing the ECB to lower policy rates as early as April. However, ECB policymakers have continued to push back against aggressive rate cut expectations, suggesting that the central bank will remain data-dependent on its interest rate outlook.
The European Central Bank held rates for the second meeting in a row in December, as it revised down its growth and inflation forecasts. “The Governing Council’s future decisions will ensure that its policy rates will be set at sufficiently restrictive levels for as long as necessary,” the ECB said in its accompanying statement.
Last Thursday, ECB President Christine Lagarde maintained her hawkish rhetoric, noting that “despite progress, it doesn't mean inflation decline will be smooth,” implying a ‘higher rates for longer’ narrative. Lagarde, however, said that she believes rates have probably peaked.
About Christine Lagarde
Christine Lagarde was born in 1956 in Paris, France. Graduated from Paris West University Nanterre La Défense and became President of the European Central Bank on November 1st 2019. Prior to that, she served as Chairman and Managing Director of the International Monetary Fund between 2011 and 2019. Lagarde previously held various senior ministerial posts in the Government of France: she was Minister of the Economy, Finance and Industry (2007–2011), Minister of Agriculture and Fishing (2007) and Minister of Commerce (2005–2007).
ECB FAQs
What is the ECB and how does it influence the Euro?
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.
The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.
The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
What is Quantitative Easing (QE) and how does it affect the Euro?
In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro.
QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.
What is Quantitative tightening (QT) and how does it affect the Euro?
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.
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