SINTRA, Portugal (Reuters) – The European Central Bank needs more time to conclude that inflation is heading towards 2 percent as economic developments indicate there is no urgency to cut rates, the bank’s president Christine Lagarde said on Monday.
The ECB made its first rate cut in June but says the outlook is too uncertain to announce a second cut.
“It may take time to collect enough data to be sure that the risks of inflation above target have been eliminated,” Christine Lagarde told the ECB’s forum in Sintra, Portugal.
“The robust labor market means there is time to gather new information,” she added.
The ECB is on a tightrope, trying to deal with inflationary uncertainty and weak growth. Uncertainty is prompting a rate cut, but persistent economic weakness is strengthening the case for easing, posing a dilemma for the financial institution.
Christine Lagarde acknowledged that the bloc was not immune to a recession, despite a modest growth rebound in the last quarter.
“We must be aware that growth prospects remain uncertain.”
Investors believe that inflation concerns will outweigh recession fears and that the ECB will take its time in cutting rates, especially since the Federal Reserve has also shown patience.
They are now betting on one or two rate cuts this year and four by 2025.
(Reporting by Balazs Koranyi and Francesco Canepa; by Zhifan Liu)
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