On Friday, November 24th local time, European Central Bank President Lagarde stated that the ECB can now suspend interest rate hikes to assess the impact of its previous monetary tightening policies.
Lagarde said at an event held by the German central bank, "We have done a lot, and considering that we have already used a large amount of ammunition, we can now carefully observe the various components of our lives, such as wages, profits, finance, geopolitical development, and how those 'ammunition' affect our economic life."
A month ago, the European Central Bank decided at its monetary policy meeting to maintain the three key interest rates in the eurozone unchanged. Lagarde added, "This is to determine how much longer we need to stay there and what kind of decisions we need to make afterwards, either upwards (raising interest rates) or downwards (lowering interest rates)."
Prior to the October meeting, the European Central Bank had raised interest rates ten times in a row, totaling 450 basis points. The main refinancing rate, marginal lending rate, and deposit mechanism rate were at 4.50%, 4.75%, and 4.00%, respectively. The European Central Bank has stated that it will ensure that interest rates reach a sufficiently high restrictive level and maintain it if necessary.
But increasing evidence suggests that the unprecedented tightening policies of the European Central Bank are affecting the economy. Preliminary data shows that after seasonal adjustments, the GDP of the eurozone in the third quarter decreased by 0.1% month on month. In response, the European Commission stated last week that the eurozone has the ability to avoid a recession, as increased consumer purchasing power will drive a mild economic rebound.
In terms of inflation, data released by the Eurostat shows that the Eurozone's inflation rate in October was calculated at an annual rate of 2.9%, lower than September's 4.3%, and is expected to further slow down in November. However, officials have warned that due to statistical factors, the inflation rate may rebound again in the short term.
The European Central Bank expects to reach the 2% inflation target by the second half of 2025. Lagarde said, "The battle is not over yet, of course we will not declare victory."
Analysis suggests that compared to before, Lagarde's stance on interest rates has clearly become more moderate, and the market believes that the statement of "suspending rate hikes and evaluating the impact" is similar to the previous tone of the Federal Reserve. Currently, traders are betting that the Federal Reserve's interest rates have peaked.
The minutes of the meeting released by the European Central Bank on Thursday also showed that officials believe they should be prepared to raise interest rates again if necessary, but this is not a benchmark plan. Bundesbank President Neger said yesterday that starting to relax monetary policy too early would be a mistake.
It should be pointed out that Neger was previously a hawkish regulator who supported further interest rate hikes by Eurobank. Media analysis indicates that the market is currently betting on the European Central Bank to cut interest rates as early as April next year. But to achieve this, the eurozone economy may need to experience a significant decline.