We are in a good position in terms of monetary policy, but that “doesn’t mean we are static,” the president of the European Central Bank stressed at the press conference that followed the central bank’s decision to keep rates unchanged.
There was a unanimous view that “all options should remain on the table” while clearly answering a question that raising interest rates was not discussed at this meeting.
“. I know everyone would like some future guidance. But we, in the current situation, with the degree of uncertainty we face, simply cannot provide forward-looking guidance,” he noted.
It said uncertainty remains constant for 2026 with the main factors fueling it being geopolitical developments, trade tensions and events that could happen at Europe’s borders.
For this reason the central bank will examine each session and decide based on the data.
The euro and eurozone bonds fluctuated sharply ahead of the decision, only to end up almost flat after the interview. Financial markets now estimate that the probability of an ECB rate hike next year is just 16%.
Economy and inflation
As for inflation, Lagarde argued that it has been in a “narrow range” since the spring. Core inflation indicators have also not changed much and remain in line with the 2% target, he added. Inflation should moderate in the near term due to energy base effects, he continued. The return to the 2028 target partly reflects the introduction of the ETS2 emissions trading system.
The ECB president described the economy as resilient and said that investment is a key element that has surprised positively.
It’s not just about public sector spending, it’s also about the private sector. And this “is largely due to the development of artificial intelligence,” he said.
The economy benefits from a strong labor market. Unemployment, at 6.4% in October, is near an all-time low and employment rose 0.2% in the third quarter.
Experts’ forecasts see domestic demand as the main driver of growth in the coming years. Real incomes are expected to rise further and the savings rate should gradually decline from its still high level, supporting consumption.
Lagarde reiterated once again how vital it is to realize the full potential of the single market and once again called for further integration of the capital market and the banking union and the adoption of the regulation establishing the digital euro.
It is an excellent job
Predictably, as the debate over her succession to the ECB presidency has begun, the Iron Lady was asked who would succeed her.
“There are a lot of very good candidates,” the president says, and Isabelle Schnabel — who expressed interest in the position in a recent interview — “is one of them.”
“I find it extremely rewarding in a way that so many people want to have my work,” he noted and added. “It’s a great job.” He pointed out that her succession will be decided by the European Council.
Another question concerns succession at the ECB and whether it is legally possible for a sitting member of the Executive Board to become president, given that the eight-year term is non-renewable.
Lagarde, referring to previous assessments of other potential candidates, said at the time this was considered impossible. However, she noted that it was not her competence to judge and that the matter should be re-examined.
The question concerns Schnabel’s tenure in the ECB’s upper echelons, which could be seen as an obstacle to her bid for succession but which observers believe could be overcome if there is central will.
Many observers believe that Schnabel’s tenure could be an obstacle, but they believe that this can be overcome if there is political will.
The frozen Russian assets
At the end of the interview he was asked about efforts to provide financing to Ukraine backed by Russia’s frozen assets, which the ECB has at times criticized.
The president of the ECB pointed out that the discussion between the leaders of Europe is ongoing. “Given the importance but also knowing what’s at stake I’m sure they’ll find a solution.” It can be done in the European way, he said, but a solution will be found at the political level.
“We are in an area of the planet where we advocate that we are a state of law. And it is characteristic of our democracy. It is therefore not the central bank’s role to support a monetary financing mechanism that is not permitted by the Treaty.”
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