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ECB President Christine Lagarde told the International Monetary and Financial Committee on Oct. 17 that the euro area remained resilient but faced risks from the Middle East conflict, energy prices and trade tensions. She said the ECB raised its key interest rates by 25 basis points in September and would base future decisions on incoming data and its three-part policy assessment.
European Central Bank President Christine Lagarde told the IMF’s International Monetary and Financial Committee on Oct. 17 that the euro area economy had remained resilient despite energy-market disruption and trade tensions, while warning that risks to growth and inflation remained elevated. She said the ECB had raised its key interest rates by 25 basis points in September, following an increase of the same size in June, and would continue to assess incoming data before making further decisions.
Lagarde’s statement said the ECB’s September staff projections put euro area growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Growth had been broad-based across most countries and sectors in the first half of 2026, according to the ECB. The bank expects domestic demand to benefit over time from recovering real incomes as energy inflation eases, a resilient labour market and increased public spending on infrastructure and defence. Investment in artificial intelligence and digital technologies was also identified as a source of support.
Inflation data presented in the statement showed headline inflation at 3.8% in September, driven mainly by a surge in energy inflation, with food and services also contributing. Core inflation, which excludes more volatile components, rose slightly to 2.5%. The ECB said its range of underlying inflation measures was broadly stable and wages had not yet shown a material response to the energy shock.
The ECB expects higher energy prices to keep headline inflation well above its target into the first half of 2027, before it declines as energy inflation falls. Its outlook anticipates inflation returning to around target toward the end of 2027. Lagarde said the energy shock was too large to ignore, but described a measured monetary-policy response as appropriate. The September rate increase followed a June increase of the same size; the statement did not announce a new rate decision at the committee meeting.
Energy Costs Shape ECB Policy
The statement matters because energy prices are pulling the ECB’s two main concerns in different directions: higher costs threaten to prolong inflation, while the same shock and tighter financing conditions can weaken economic activity. Lagarde said the bank saw no evidence so far of significant additional pass-through from energy prices into other prices and wages beyond what its projections already included. But she warned that a more intense or lasting shock could produce stronger indirect effects and more persistent inflation.
For households and businesses, that tension can affect borrowing costs, investment and the pace of any recovery. The ECB’s stated approach is to weigh the inflation outlook and its risks, the underlying inflation trend, and the strength of monetary-policy transmission. The statement offers no promise about the timing or size of future rate moves; it signals that decisions will depend on how the data and the energy shock develop.
Lagarde also linked stability to public finances and longer-term economic capacity. She called for sound fiscal policies and said any government response to the energy shock should be temporary and targeted. She pointed to workforce skills, labour-market participation and improved conditions for innovative firms as areas that could support resilience and productivity.
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The ECB’s Rate Decisions So Far
The statement was delivered at the 54th meeting of the International Monetary and Financial Committee during the IMF Annual Meetings. It set out the ECB’s assessment for an international audience, covering economic activity, inflation and monetary policy, rather than announcing a decision by the committee itself.
The ECB said its Governing Council raised key interest rates by 25 basis points in June and again in September. Lagarde described the bank’s decisions as based on three criteria: its inflation outlook and associated risks, the dynamics of underlying inflation, and the strength of monetary-policy transmission. She also said long-term interest rates had risen notably since the ECB’s previous meeting, tightening financing conditions.
Beyond rate policy, the statement noted that the Governing Council decided in July on the operational features and onboarding process for an enhanced Eurosystem repo facility for central banks, known as EUREP. The ECB said more than 30 central banks had expressed interest in the facility over the previous six months. It described EUREP as supporting monetary-policy transmission and the international role of the euro.
“The energy shock is too large to “look through” but a measured response remains appropriate to keep inflation in check.”
— Christine Lagarde, ECB president, in her statement to the IMFC
The Shock’s Duration Remains Unknown
The ECB’s outlook depends in part on how intense and long-lasting the Middle East conflict will be and how related shocks spread through the economy. The statement did not quantify the conflict’s future effect on energy prices or give a firm estimate of how much additional inflation might result.
It also remains unclear whether higher energy costs will feed into wages and a broader range of prices. The ECB said it had not yet seen a material wage response or significant additional pass-through beyond its projections, but warned that a persistent shock could change that assessment. The outlook could also shift with developments in Russia’s war against Ukraine, extreme weather, financial-market conditions and trade policy.
The growth and inflation figures are forecasts and assessments reported in the ECB statement, not settled outcomes. Lagarde did not specify when the Governing Council might next change rates, and the statement did not provide a new interest-rate decision or a detailed account of financial-stability vulnerabilities.
Incoming Data Will Guide Rates
The ECB Governing Council will continue to assess incoming economic and financial data against its three stated criteria when setting monetary policy. Lagarde said future decisions would follow a comprehensive assessment under the bank’s reaction function; she did not set out a timetable for another move.
Developments in energy prices, inflation, wages, economic activity and financing conditions will help show whether the September projections remain on track. The next policy decision and updated forecasts will clarify how the Governing Council views the balance between the risk of persistent inflation and the effect of tighter financing on growth.
Key Questions
What did Christine Lagarde tell the IMFC?
She said the euro area economy had shown resilience but faced risks from energy-market disruption, geopolitical conflict and trade tensions. She also outlined the ECB’s inflation outlook and its approach to future rate decisions.
Did Lagarde announce a new interest-rate increase?
No. Her statement reported that the ECB raised its key interest rates by 25 basis points in September, after an equal increase in June. It did not announce a new rate decision at the IMFC meeting.
What inflation figures did the ECB report?
The statement said headline inflation was 3.8% in September and core inflation was 2.5%. The ECB attributed most of the headline increase to energy inflation, with food and services also contributing.
When does the ECB expect inflation to return to around target?
The ECB’s outlook expects headline inflation to decline after the first quarter of 2027 as energy inflation falls, returning to around target toward the end of 2027. This is a forecast and could change as conditions develop.
Source: primary
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