ECB’s Lagarde absolutely confidence that inflation would sustainably return to 2% by 2025

At a Bloomberg Newsmaker event, ECB President Christine Lagarde expressed that she was “absolutely confident” that inflation would sustainably return to 2% by 2025. When asked if this target could be reached earlier than ECB’s current projection of late 2025, Lagarde replied, “That would be my hope.”

Despite this optimism, Lagarde emphasized the need for caution, signaling that ECB is not yet ready to declare victory over inflation. She made clear that the future path for monetary policy was dependent on incoming data and that while the direction of policy easing was apparent, the pace of further rate cuts would be data-dependent.

On the question of the neutral rate—the level of interest rates that neither stimulates nor restrains the economy—Lagarde was hesitant to provide specifics, noting that while the neutral rate is likely higher than in recent years, it remains below the current 3.25% deposit rate, which she described as still restrictive.

“If you were to ask me today, ‘Where is it?’, the honest answer is, I don’t know,” she admitted.