The President of the European Central Bank, Christine Lagarde, “left her papers closed” on whether she will proceed with a reduction in interest rates on September 12, when the Board of Directors of the Central Bank is expected to meet again.

The European Central Bank at today’s meeting of its Board of Directors decided to leave interest rates unchanged.

Thus, the interest rate of the main refinancing operations and the interest rates of the marginal financing facility and the deposit acceptance facility will remain at 4.25%, 4.50% and 3.75% respectively.

During the press conference, the head of the ECB avoided giving any indication of the next moves on the interest rate front, stressing that “decisions are taken each time at the Governing Council meeting and are based on economic data”. He added that “there is no predetermined “road map” for the reduction of interest rates”.

Asked whether she was more optimistic about meeting the target of reducing inflation by the middle of next year, Christine Lagarde said bluntly that “she would have to have more data to feel more or less optimistic about meeting the target ».

Inflation is expected to hover around current levels for the remainder of the year, partly due to energy-related core effects. It is then expected to decline towards the ECB’s target in the second half of next year due to weaker growth in labor costs, the impact of tight monetary policy and the weakening of the impact of earlier inflation.”

However, with regard to developments on the front of the real economy, the ECB remains cautious, considering that there continue to be increased risks for a further slowdown in the rate of growth.

Moreover, the new data shows that the euro area economy grew in the second quarter, but probably at a slower pace than in the first quarter.

Services continued to lead the recovery, while industrial production and exports of goods were weak. Investment indicators point to subdued growth in 2024 amid heightened uncertainty. Looking ahead, the ECB expects the recovery to be supported by consumption, driven by strengthening real incomes resulting from lower inflation and higher nominal wages. In addition, exports should recover in line with the increase in global demand. Finally, monetary policy should exert less resistance to demand over time.

Referring to risks on the growth front, the head of the ECB said that “a weaker global economy or an escalation of trade tensions between major economies would weigh on growth in the euro area. Russia’s unjustified war against Ukraine and the tragic conflict in the Middle East are significant sources of geopolitical risk. This could result in businesses and households having less confidence about the future and global trade being disrupted. Growth could also be lower if the effects of monetary policy prove stronger than expected.”

Christine Lagarde placed particular emphasis on the need to ensure fiscal discipline among the Eurozone member states. “We welcome the European Commission’s recent guidance calling on EU Member States to strengthen fiscal sustainability and the Eurogroup’s statement on the fiscal path of the euro area in 2025. The full and prompt implementation of the revised EU economic governance framework it will help governments reduce fiscal deficits and debt ratios on a sustained basis,” said Mrs. Lagarde.