President, European Central Bank
ECB Holds Interest Rates Steady As Christine Lagarde Warns Inflation Risks Remain High | AF14
WATCH NOW as European Central Bank (ECB) President Christine Lagarde delivers a major press conference following the latest ECB Governing Council meeting in Frankfurt. Lagarde explains why the ECB kept interest rates unchanged, shares the latest outlook on inflation, energy prices, economic growth, and the future of the Eurozone economy. Her remarks provide crucial insights for investors, businesses, policymakers, and anyone following global financial markets.
Watch the full briefing to hear Christine Lagarde's key statements on inflation risks, monetary policy, interest rates, and Europe's e...
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 (11 segments)
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Wolfgang Proissl2:06
Good afternoon and welcome to our press conference with President Lagarde and Vice President Guichard. My name is Wolfgang Proissl. We are also connected to journalists via video link. If they ask questions, I ask them to turn on the cameras and their microphones. And with that, I'd like to hand over to President Lagarde, please.
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Christine Lagarde2:31
Thank you very much, Wolfgang, and good afternoon, good day to all of you. The Vice President and I welcome you to our press conference. The Governing Council today decided to keep the three key ECB interest rates unchanged. The outlook for energy prices, while highly volatile, currently stands close to the baseline of the June Eurosystem staff projections and well above the levels recorded prior to the conflict in the Middle East. Uncertainty remains high and the full inflationary impact of the energy shock has yet to play out. We are therefore closely monitoring the intensity and duration of the shock as well as its indirect and second-round effects. We are committed to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term. With today's decision, we remain well positioned to navigate the uncertainty caused by the conflict. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it in light of the incoming economic and financial data as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. The decisions taken today are set out in a press release available on our website.
I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions. Looking at the economic activity, recent inflation points to some improvement in economic activity in the second quarter even though the conflict in the Middle East remained a headwind. Surveys suggest that activity in the services sector has partly recovered after weakening markedly in the immediate aftermath of the energy shock. Digital services have been robust in part owing to the increasing contribution from AI-related activity. Manufacturing has continued to hold up supported by firms building up stocks to guard against supply chain risks as well as by higher defense spending. Unemployment stood at 6.2% in May. At the same time, job postings have continued to decline and both firms and households expect the labor market to remain weaker than before the conflict. Forward-looking indicators suggest that economic growth will remain modest in the near term and weighed down by the energy shock and related uncertainties. Yet, the fundamental drivers of medium-term growth remain intact. Private consumption, investment in new digital technologies, government spending on defense and infrastructure, and some recovery in exports should all contribute to overall growth momentum.
The Governing Council reiterates its call for urgent action to strengthen the euro area economy while maintaining sound public finances. Simplifying and harmonizing rules across the EU single market, accelerating the energy transition and completing the savings and investments union are key building blocks. Fiscal responses to the energy shock should be temporary, targeted, and tailored. The positive vote in the European Parliament earlier this month was a significant milestone on the path to establishing the digital euro. We welcome the shared objective of the Parliament, the European Union Council, and the Commission of reaching agreement by the end of this year on the single currency package. The digital euro will complement physical cash with its digital equivalent, providing a means of payment for any digital transaction throughout the euro area. Let me now turn to inflation.
Inflation declined to 2.8% in June from 3.2% in May. Energy price inflation declined to 8.5% after 10.8% in May while food price inflation fell from 1.9% to 1.5%. Inflation excluding energy and food eased to 2.4% from 2.6% in May with goods inflation decreasing from 0.9% to 0.7% and services inflation from 3.5% to 3.2%. The energy shock continues to feed into higher prices. It is becoming more expensive for firms to source inputs and they therefore expect to put up their selling prices. While developments in underlying inflation have remained contained, the full effect of the energy shock has yet to play out. The ECB's wage tracker and surveys on wage expectations continue to indicate moderate wage growth over the coming quarters. Rising labor productivity has also helped contain growth in unit labor costs. Inflation expectations over shorter horizons remain at elevated levels. Most measures of longer-term inflation expectations stand at around 2%, supporting the stabilization of inflation around target in the medium-term.
While energy price inflation declined in June, its rise since the start of the conflict and its impact on food, goods, and services price inflation is likely to keep inflation well above target into the first half of 2027. Inflation should then decline as energy prices are expected to fall and other prices should rise more slowly. However, the conflict remains a major source of uncertainty. We are therefore closely monitoring the size and persistence of the energy price increase and how it feeds through to price and wage setting, inflation expectations, and the overall economic dynamics. The risks to the growth outlook are to the downside. While the memorandum of understanding agreed between the United States and Iran in June constituted a first attempt to resolve the conflict, recent weeks have brought renewed setbacks, and the geopolitical situation remains fragile. Renewed disruption of energy supplies could increase energy prices further and for longer than currently expected. This would weigh on real incomes, spending, and investment. A worsening of global financial markets sentiment or a tighter supply of credit could dampen demand. Additional frictions in international trade could also further disrupt supply chains, reduce exports, and weaken consumption and investment. Other geopolitical tensions, in particular, Russia's unjustified war against Ukraine remain a major source of uncertainty.
By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the conflict in the Middle East or if the conflict was resolved sustainably. Moreover, planned defense and infrastructure spending and reforms to enhance productivity and complete the single market as well as euro area firms adopting new technologies may drive up growth by more than expected. The risks to the inflation outlook are to the upside. The energy shock could intensify further and its effects on other prices and wages could be stronger than currently expected. The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects. Ongoing trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials, and worsen capacity constraints in the euro area economy. Extreme weather events, as illustrated by the ongoing heatwaves and the unfolding climate and nature crisis more broadly, could drive up food prices by more than expected.
By contrast, inflation could turn out to be lower if the conflict in the Middle East was resolved sustainably or if indirect or second-round effects proved less pronounced than anticipated. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well. Overall, financial conditions have become slightly tighter since our previous meeting consistent with the increase in the key ECB interest rates. Bank lending rates for firms and the cost of issuing market-based debt remained unchanged in May at 3.6% and 4% respectively. The annual growth rate of bank lending to firms increased to 4% from 3.4% in April but this was partly offset by slower growth in corporate bond issuance which fell from 4.5% to 3.4%. Credit standards for business loans tightened somewhat in the second quarter as reported in our latest bank lending survey for the euro area. Demand for loans to firms increased slightly driven by higher working capital needs but also by borrowing for fixed investment by large firms. Mortgage rates rose to 3.5% in May after 3.4% in April while mortgage lending growth edged up to 3.1%. Credit standards for mortgages tightened in the second quarter as banks became more concerned about the economic risks faced by their customers and less willing to take on risks themselves. Demand for mortgages decreased on the back of deteriorating consumer confidence and higher interest rates.
So in conclusion, the Governing Council today decided to keep the three key ECB interest rates unchanged. We are committed to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term. We will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilizes sustainably at our medium-term target and to preserve the smooth functioning of monetary policy transmission. We are now ready to take your questions. Thank you.
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Wolfgang Proissl16:22
First question goes to Anette Weissbach of CNBC. Anette, please.
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Anette Weissbach16:27
Good afternoon, President Lagarde.