Lagarde: ECB to decide on December rate hike as euro inflation sits near 4%

A December decision on rates

Speaking at the Borsa Italiana seat in Piazza Affari, Milan, on 5 November, ECB president Christine Lagarde said the bank had discussed another rate increase at its latest policy meeting but judged itself well placed to wait. She said the ECB will revisit its projections in December, when it expects to have many indicators to help decide whether a rise is needed to reach its target. She described the current situation as severe and said much more data is needed before then. The ECB raised rates in June and again in September, then held them steady in October. Financial market operators expect a deposit rate of 2.75% by the end of the year.

Energy-driven inflation

Lagarde put euro-area inflation at 4% and said it is above 5% in Italy, driven mainly by energy. Energy prices were up 18% year on year in the euro area and by more than 20% in Italy. She said energy feeds into a large share of what is produced, which pushed up prices across the board. The pressure will probably persist for some time, until a base effect appears in the annual comparison, and she stressed the word probably because conditions change very quickly. She also said the ECB has one mission, price stability, which cannot be achieved without financial stability.

Seven years and an early exit

Lagarde announced on 29 October that she will step down in February, nine months before her mandate ends. At the Milan event she said she remains an owl, a central banker who is neither a dove nor a hawk. Over seven years, she said, many doves had turned somewhat hawkish and many hawks had turned dovish, a shift she attributed to uncertainty and a series of crises. She acknowledged that the bank had not always diagnosed the situation correctly, but said it had performed reasonably well compared with other central banks. She has described leaving early as a way to regain freedom of expression.

Independence and trade

Lagarde said the ECB is highly independent under the treaties and that no leader can call her to ask for a rate rise or cut. She named Sergio Mattarella, Emmanuel Macron and Giorgia Meloni, saying they do not make such calls because they know they cannot. When a student asked about exchange rates, she said she could not answer, since they are set by economic fundamentals rather than by the central bank. On trade, she called the US tariffs introduced by Donald Trump counterproductive and damaging to multilateralism, but said she does not expect them to be revised soon, even after the Democratic win in the US midterm elections. She said the measures are likely to last a long time, pushing companies to favour supplier security over pure cost efficiency.

The Piigs and Germany

Lagarde said the balance of power in Europe has shifted: Portugal, Italy, Ireland, Greece and Spain were called the Piigs and were in crisis 15 years ago, but now sit at the top of economic rankings. She acknowledged they could still grow faster or carry less debt, while saying the trend points in the right direction. She also criticised northern Europe, where not everyone is doing as well as before, starting with Germany.

Young Factor and key dates

The event was part of the Young Factor project, promoted by the Osservatorio for Independent Thinking, whose president Andrea Ceccherini hosted the dialogue. Reports gave the audience as between 400 and more than 600 students. In Italy the project has been backed since 2014 by Intesa Sanpaolo and Unicredit, and Crédit Agricole Italia is set to join. The timeline below sets out the dates reported in the coverage, with months used where the articles give only a month.