ECB's Lagarde signals no rate cuts soon

FRANKFURT — The European Central Bank (ECB) is not set to cut interest rates for the "next couple of quarters", president Christine Lagarde signalled recently, while also warning of a potential resurgence in inflation.

The central bank hiked rates 10 times in a row to tame runaway consumer prices but held them steady for the first time in over a year at its October meeting.

With eurozone inflation falling to 2.9 per cent last month and higher borrowing costs weighing on the single currency area, speculation has intensified about when the ECB may start cutting rates.

Speaking at a Financial Times event, Lagarde sought to douse hopes this could happen any time soon.

If rates were held at their current levels for "long enough", then it will "make a significant contribution to bringing inflation back to our two-per cent target in the medium term", she said.

Pressed on how long this might be, she said: "Long enough is long enough. It's not something that [means] in the next couple of quarters we'll be seeing a change."

Last month's slowdown in inflation brought the indicator to the lowest level since July 2021. 

Consumer price rises in the 20 countries that use the euro had peaked at 10.6 per cent in October last year, driven mainly by surging energy costs after Russia's invasion of Ukraine.

Lagarde acknowledged that "inflation has come down massively", adding that "one could argue... monetary policy has done its job".

But she added that heavy falls in energy prices in particular had helped drive the fall, and suggested another energy shock could prompt the figure to jump again.

"We should not assume that this respectable 2.9 headline number is something that should be taken for granted," she said.

"There will be a resurgence of probably (a) higher number going forwards and we should be expecting that."