Christine Lagarde: European Central Bank likely to cut rates this summer

investmentweek.co.uk:

Markets had fully priced in six ECB reductions at the end of last week, with the first move coming as soon as April.

During an interview with Bloomberg during the World Economic Forum in Davos today (17 January), Lagarde said it is likely that the majority of the governing council policymakers would be supportive of such a move, but argued she «needs to be reserved». 

«We are also saying that we are data dependent, and that there is still a level of uncertainty and some indicators that are not anchored at the level where we would like to see them,» she said. «You have talked to some of them, they have spoken recently, and each of them has their view, which I respect completely.

»We generally coalesce towards the decisions that we make on the basis of data. Some of them have their local domestic data, they have their respective inflation rates, which are different from one country to the other." 

Eurozone inflation rises to 2.9%

Markets had fully priced in six reductions at the end of last week, with the first move coming as soon as April. Lagarde said that such high anticipation is not helping the central bank's fight against inflation. 

The president suggested that short of a «major shock», it was likely interest rates have reached a peak, but warned that policy will have to remain restrictive «for as long as necessary» to ensure inflation remains below 2% in the medium term.

She said: «We are on the right path, we are directionally towards the 2%, but unless and until we are confident that it is sustainably at 2% in the medium term and we have the data to support it, I am not going to shout victory. Not yet.»

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