President, European Central Bank
Q&A: ECB Chief Christine Lagarde Faces Tough Questions On Inflation, Rates And ECB's Next Move| AF14
WATCH NOW as European Central Bank (ECB) President Christine Lagarde faces a series of tough questions from international ...
About Christine Lagarde
Christine Lagarde, President of the European Central Bank, held press conferences on July 16 and July 23, 2026, following the ECB Governing Council's monetary policy meetings. On both occasions, she announced that the council decided to keep the three key ECB interest rates unchanged. She stated that the outlook for energy prices, while highly volatile, was close to the baseline of the June Eurosystem staff projections and well above levels recorded prior to the conflict in the Middle East, adding that uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. Lagarde said the ECB is committed to setting monetary policy to ensure that inflation stabilizes at the 2% target in the medium term and will follow a data-dependent, meeting-by-meeting approach, not pre-committing to a particular rate path. She noted the decision was unanimous, but qualified that some governors questioned whether a rate hike should be considered. Lagarde warned that the longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects, and that inflation is likely to stay well above target into the first half of 2027. When asked about speculation that she might leave the ECB early, Lagarde said, "You are not going to see the back of me before 2027," and added that "when there are clouds on the horizon the captain stays on the ship and this captain is staying on this ship as long as there are clouds on the horizon." In an interview with Euronews on July 8, Lagarde rejected claims that the digital euro is designed to replace cash or allow the central bank to monitor payments. She said that cash will be "rejuvenated" and that the digital euro is needed because the euro area depends on payment infrastructure under foreign capital, predominantly from the US and China. Lagarde stated, "The best thing I know is a European solution," adding that "we need to have a European solution because we want to be sovereign at home." She also commented on the upcoming French presidential elections, saying "I'm not a candidate for anything, but I'm very keen that Europe is protected, that Europe is the framework within which member states operate, including
Transcript (39 segments)
M
Moderator0:00
Smooth functioning of monetary policy transmission. We are now ready to take your questions. Thank you. First question goes to a vice president of CNBC. Anita, please.
A
Anita0:13
Good afternoon, President Lagarde. My first question goes onto the discussions which you had today. So just to get an understanding of how you have discussed the recent spike in energy prices and what it also means for policy setting going forward. I know you don't want to precommit, but still the community and also what you're saying today at least in my understanding reads rather on the side of being more vigilant about the price development. My second question would be: have you discussed the rise in bond yields because they are also increasing and do you factor that in into an assessment of how tight monetary policy is actually here in the euro area? Thank you.
C
Christine Lagarde1:03
Thank you very much for your two questions. So we spent the last two days with members of the governing council really looking at all the data available and assessing the situation since the last monetary policy decision that we made back in June. And I'm saying back in June because there's a lot of back to the baseline in the situation that we are facing at the moment. So the analysis that we conducted, fed by staff work analysis, really looked into what has happened since June and what policy decision we should make as a result. So since our decision in June, we have had some relatively benign development. You look at inflation, which came out much lower than anticipated: 2.8 versus 3.2 difference relative to our anticipation. You look at economic activity, taking out Ireland, it's a relatively good progression, 0.3. And then of course the memorandum of understanding which preceded a ceasefire which led to a significant decrease in at least crude oil prices, probably faster than we had anticipated. But that was the first part of that period of time. Then came the second part where this memorandum of understanding was short-lived. Ceasefire was broken several times and led to the current situation where we have clearly a flaring up of the conflict and serious development taking place on the commodity markets. So that's what we considered throughout the last two days, and we really applied the method that we have agreed amongst ourselves in such a shock, which is to really try to understand the density, the durability, and the propagation effects of the supply shock. That's what led us to take the decision that we took this morning of holding our rates for the moment. You asked me about the euro area bonds. You know, we take a certain point in time because there's a cut off date at which we stop the clock, if you will, but we take all market conditions including of course the euro area bonds, their evolution in that process. So this is part and parcel of number one, the baseline, and number two, the assessment that we take on the occasion of this meeting.
There is one difference that I'm sure you have noticed, which has to do with our risk assessment. When I say we're back to the baseline, we're also back to the risk assessment that we conducted back in June. And if you remember, at our conference in CRA, I did refer to more balanced. I didn't change the direction, but I used the reference to more balanced upside and downside risk respectively for inflation and growth. That segment 'more balanced' has been removed. And obviously it reflects the succession of the ombi, if you will, that we had for a couple of weeks and then again the flaring up of the conflict and the impact that it has had on commodity prices and as a result the expectations that we have in relation to prices.
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Moderator4:55
Franchesco Kip of Reuters. Franchesco please.
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Franchesco Kip5:00
Good afternoon. So was the decision today unanimous or did anyone even at the discussion phase of the meeting raise the prospect of increasing interest rates? Second question is about the indirect and second round effects that you mentioned in the press release. Can you tell us if you see any evidence of those materializing?
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Christine Lagarde5:22
Well, thank you for your two questions. Yes, it was a unanimous decision, but I'm going to qualify that because there were some governors who asked themselves whether we should not consider a hike, in other words, raising the three interest rates on the occasion of that meeting. And we had really a good, thorough look at the data, at the current development, and we all unanimously decided that we were positioned adequately to wait and be very attentive in the next few weeks to the development of the situation and to the data that we will be receiving in the next few weeks.
Consider that in the next before our next September meeting, we will be receiving two monthly indicators for inflation. We will be receiving the GDP for the second quarter. We will be receiving two consumer expectations indices. We will be receiving one compensation per employee number. We will be receiving two PMI numbers. I'm going through the long list. Sounds like a laundry list, but that's just to give you an indication of the volume of data that we will have and the scope of indications that we want to absorb in order to apply our reaction function. So we will be receiving all that. We will be looking very carefully at all these data. We will be applying our normal reaction function: inflation outlook, the risk associated with it, the underlying inflation, transmission, and we will be again measuring the intensity, the duration, and the propagation of the shock throughout the economy, and that takes care of your second question. We will be particularly attentive to any risk of second round effects. I think it's clear to all of you, all of us, that there are direct effects. It goes without saying that there are indirect effects. When you look at the price of say transportation for instance, it's pretty obvious. Second round effects, we are not seeing it. So believe me, we are really scrutinizing the emergence of second round effects but we are not seeing it. So one of the most up-to-date informative elements that we have is the corporate telephone survey where we ask large and smaller corporates, 'What are your plans in relation to wages?' and we are not seeing second round effects. There might be compensations on a one-off basis for instance, but a change from what is naturally incorporated in our baseline? No, we don't see that. And you know, on top of it, what we had anticipated which was this gradual decline of wages, we are seeing it. I mean, compensation per employee is one indicator went from 3.8 to 3.5. But we also have the wage tracker. We have various elements, we have the negotiated wages which is also informative about what is to come, and none of those elements for the moment are giving us second round effects indication.
M
Moderator9:30
And now of Bloomberg please.
B
Bloomberg Reporter9:35
Good afternoon. So I heard you say some of your colleagues wondered whether you should already raise interest rates today. You said on another occasion that we decided to hold rates for the moment. Now I'm just going to conclude that this sounds very much like you are preparing and signaling a September hike, and I very much invite you to say if that's not the case. But my real question is: what would need to happen for you not to do that? What would happen for you not to consider a September rate increase? And my second question is of a bit of a different nature. You keep feeding speculation that you will leave the ECB early. You've talked about clouds on the horizon. You've talked about captains and ships in crisis. I'm really just looking for a yes or no answer today on whether you're willing to commit to serve until the end of your term. Thank you.
C
Christine Lagarde10:36
You know, I hate to be boxed in in any particular circumstances. So on this latter point, number one, it was not discussed at the governing council meeting, but I'm going to give you two elements. First of all, you are not going to see the back of me before 2027. Okay? And second, what I said, that 2027 my dear. Okay. And the second point that I would mention is the same that I did mention once: when there are clouds on the horizon, the captain stays on the ship, and this captain is staying on this ship as long as there are clouds on the horizon. Now you can speculate, write anything you want. I don't think it's particularly interesting and important. What matters is that we apply the right monetary policy in order to bring price stability. So that will be my answer in response to this point. More importantly, what we are doing is not giving any forward guidance. I think that you know, I've made that point clear and loud and I've been doing that for a long time. On the other hand, we are giving framework guidance. So analysts, you all appreciate how we assess the situation, what elements we take into account, and it's a combination of the three-prong approach which is underlying inflation. I'll cut it short because you know it inside out as I do: underlying inflation, transmission, but we also, and I think I've made that very clear in the ECB watcher speech, I also gave clear indication of how we assess the situation in case of an energy shock of that nature, whether it's short-lived, whether it's longer term, whether it's high and long, and I think that all of that stands. Okay. So we do that. We also, and particularly in light of the most recent variation of and volatility of prices, we also take a view on the duration, the intensity, and the propagation of the shock. And it's really on the basis of all those parameters that we make decisions on a meeting-by-meeting basis. As I've said, we're back to the baseline that stands. We are going to continue to receive all these components and all these data in the weeks to come and then we will make our decision in September. Thank you.
M
Moderator13:16
And the next question goes to, sorry I have a blank, Olaf from the Financial Times. Sorry Olaf, over to you.
O
Olaf13:28
Thanks for taking my questions. My first question is regarding the current today's situation in the Red Sea. Did you discuss that in the governing council meeting and what it might mean for the overall assessment if this is if now a second key supply line might be disrupted. And my second question is actually I only have one question today.
C
Christine Lagarde13:59
This is a bit of a change. So we have seen multiple developments as I said earlier in the last six weeks. We've seen improvement, positive expectations, significant reduction of prices, followed by negative breakthrough, significantly increased prices. And by the way, we look not just at crude oil. We look at all the variations of that including the what is known as the crack spread to see where money is actually going in case of price increases. The most recent developments. I'm assuming that you're referring to the Houthi threats against Saudi Arabia vessels and the materialization that took place this morning. My understanding of that is that it was reported at 10:00 a.m. Now, because it was a decision that harnessed a great sense of consensus around the table, we probably finished the meeting at about 10:15. So I'm not sure that that particular element that took place this morning, which is alarming, which is clearly going to have an impact and is having an impact. We can see that on the price of Brent as it evolves almost by the hour. But that was not in and of itself taken into consideration during the decision that we took this morning. That does not say that we are oblivious to energy shock that lasts, that possibly amplifies and that certainly has repercussions. And so we are very attentive to that. I can already tell you that we asked staff to conduct some really in-depth analysis for our September meeting on the various oil prices as I just mentioned but also gas because when you look at energy prices, oil has certainly gone up and is going up as we speak but gas has significantly increased as well and given the level of inventory that is at rather low levels. This is also a matter that will be under sensitivity review in addition to the scenario work that we do given the magnitude of changes that are taking place.
M
Moderator16:34
Next question goes to Stefan Reus of Hundles. Stefan please.
S
Stefan Reus16:39
Thank you and good afternoon. I'm trying to poke a bit more on what's been discussed on potential hikes given that there was some sort of push for a back-to-back front loading type of hiking today.
C
Christine Lagarde16:55
No, no, there was no push.
S
Stefan Reus16:57
Push is the wrong word. Okay, fair enough.
C
Christine Lagarde16:59
Wrong word.
S
Stefan Reus16:59
Who has the burden of proof going into September? Is it on those arguing for a hike or is it on those arguing against a hike? My second question is on the minimum reserve requirement. Did you have any discussion about raising it and or will it be open for discussion in the next months? Thanks.
C
Christine Lagarde17:25
So my answers will be rather short. The burden of proof is on data, as simple as that. On the minimum reserve requirement, it was not discussed on the occasion of this governing council, which doesn't mean to say that it will not be discussed. It will.
M
Moderator17:44
Next question goes to Andum of Expansion. And please.
C
Christine Lagarde17:48
It will, as it has been by the way. This is not something that is you know.
A
Andum17:53
Thank you. I would like some clarification on the alternative scenarios. Given that you are willing to give some framework guidance, is there a point at which the mild scenario is no longer a possibility even if the conflict ends and could that point be reached in between today and the September meeting? And a second question if I may, how are you planning to balance the agility of the central bank with avoiding sudden shifts in direction because two weeks ago we had like kind of completely different situation and that could have like needed a completely different monetary policy decisions. Right. Thank you.
C
Christine Lagarde18:35
Your first question deals with the sustainability of the mild scenario, right? Or the likelihood of materialization. You know, it's not a question to which I can give a reliable answer. Why do I say that? Not because I cannot think or the staff cannot help us think along those lines, but we have seen so abrupt changes occurring in a matter of days not just in terms of the level of the conflict but also the consequences in terms of energy prices. You know, remember how fast energy prices went down after the announcement of the memorandum of understanding. Now, once burned, twice shy. It could well be that another announcement of such memorandum of understanding will not have the similar impact because there is rising uncertainty and it applies across the board. But still, the situation can reverse so fast that it's difficult to either affirm or challenge the possible materialization of this mild scenario. As we stand now today, it looks quite unlikely, let's face it, but taking a view on the likelihood of material realization is another story because of the uncertainty that we have. And that's precisely the reason why it is helpful to have the scenarios and to test our recommendations and our stance against all scenarios and to have a range of assessment. I'm not sure exactly what you meant about our agility, but what I can assure you of is that staff at the ECB is working flat out to absorb all the data almost as they come and to make sure that while sticking to principles of cutoff dates of the reaction function that we apply, they are still capable of absorbing all developments. And that's really a factor of the agility that we try to demonstrate. We've done that in the past and we will continue to do so.
M
Moderator21:12
Next question goes to Santi Por of Market News International. Santi please.
S
Santi Por21:18
Good afternoon. My question is with all these developments that change quickly, I think it's particularly important that markets understand this framework guidance. Do you think that they fully understand the guidance framework and the reaction function, and I'm not asking if they are pricing right, but do they understand what you are saying in a moment where things can change so quickly and is there a way to improve that understanding? Thank you.
C
Christine Lagarde21:49
Well, thank you very much because this is a question that we asked ourselves as well. And our assessment on the basis of the transmission and the almost immediate transmission, the tightening that we have observed on markets, our understanding is that our reaction function is very well understood by markets. The fact that it has been well articulated, that it's concise in its expression, that it can be understood I hope by all but certainly by markets, I think is a factor of stability in this very uncertain landscape in which we are trying to navigate. So I really think that it is well understood. And you know, analysts, markets, you have access to a similar range of data as we do and as they are published. So the integrity of the data is important. The immediate assessment of such data and taking on board of such data is important as well. But the reaction function is something that is very stable.
M
Moderator23:09
Next question goes to Elena Satova of the Bulgarian news agency BTA.
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Elena Satova23:14
Thank you for having me. Speaking of inflation, one of the countries with high inflation in the recent months is Bulgaria. How do you assess this data? And I have a second question that's somehow interconnected. How do I assess the outlook for euro zone enlargement given the signals that are coming from Hungary? Thank you.
C
Christine Lagarde23:45
Thank you for your two questions. You are correct that Bulgaria is currently experiencing high price level, high inflation, and that may have to do with the fact that some prices that had been kept on hold for a period of time have found their way into the markets. It's not totally unusual. And we always have divergences between member states. I think what matters is the commitment of Bulgaria to observe sound public finance and to make sure that inflation returns to more acceptable levels, in particular for the Bulgarian population. So we monitor the overall euro area, but we are attentive to divergences, and this is clearly one of them at the moment. On the issue of enlargement, this is a topic that is not really for us to decide. It's a matter where we give views particularly in relation to inflation. It's a matter that is essentially under the consideration of the European Council and the Commission. As you know, there is a process. Bulgaria went through that process successfully and we are always ready to welcome more members as long as they satisfy the requirements and comply with the criteria and the convergence conclusions are positive. So we'll see. It always takes a little bit of time, but ultimately all members of the European Union except for one are expected to join the euro area.
M
Moderator25:29
And the last question to go today goes to Mat Villa of Econ. Ma please.
M
Mat Villa25:37
Good afternoon. Thank you for taking my questions. Madame Lagarde, would concern about second round effects alone justify another move in September or would you need to see evidence that they are in fact materializing? And my second question is about the market implied rate path. You often point to the rate path embedded in the staff projections. How important is the market implied path for policy decisions? Thank you.
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Christine Lagarde26:06
So if it was just a matter of concern, we would have raised hike because whenever there is a shock of that nature, we have to be concerned about direct, indirect, and second round effects. So we are concerned, which leads us to be very attentive, looking and checking any possible emerging sign that second round effects are not only in the making but in the coming and more so than what we have in the baseline. We are not at that stage where we are seeing those emergence signs of second round effects. Okay. Additionally, by the way, we have inflation expectations beyond the short-term ones that are broadly anchored at our medium-term target, which is also important. The rate path implied that is market determined is something that we factor into our work because obviously we take certain market conditions at a cutoff date and that includes of course the market rate implied trajectory.
M
Moderator27:23
Thank you. That concludes our press.
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Christine Lagarde27:26
Wait, wait, wait. I want to say something.
M
Moderator27:27
Okay.
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Christine Lagarde27:29
Now, I want to say something because I don't know if we still are on the stream or not, but I just want to take this opportunity to congratulate the central bank of Bosnia and Herzegovina as well as the central bank of Montenegro on their successful launch earlier this week of a platform for the settlement of instant payments which uses the technology of TIPS, the euro system's fast payment system. We don't often talk about that because it's a monetary policy focused press conference, but this is important. So I'm looking forward to a similar launch in Albania, Kosovo, and North Macedonia, which are expected to join in November, bringing all countries participating in the initiative onto the platform. And I would like on this occasion to thank Banca d'Italia for the key role that it has played on this initiative on behalf of the whole Eurosystem by developing a clone of TIPS for the countries of the Western Balkans, which except for Serbia are now all going to be included in November within our TIPS platform. You should expect some further development in relation to interlinking fast payment systems, but that's for a later date. And I know that some of you are going to stay a little longer maybe writing the articles and news because we will soon be disclosing in that very room the set of proposed new banknotes, the new euros that will have a different face, a different back, and that will be in the pockets of European citizens when the project is completed after hopefully they have participated in the survey. With that, I hope to see you in about half an hour.
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Moderator29:10
That will be at 4:15 and the next press conference will be at our external governing council in Berlin on the 10th of September. Thank you very much and see you shortly.