ECB is keeping its stance steady as global pressure builds

The European Central Bank (ECB) is keeping its stance steady as global pressure builds. Christine Lagarde, speaking to lawmakers in Brussels on Monday, said the ECB is “in a good position to navigate the uncertain circumstances” created by today’s unstable economic and political climate.

She said that inflation across the euro area is expected to stabilize around the 2% target, even though risks to growth remain clearly tilted to the downside.

According to remarks reported by Bloomberg, Lagarde emphasized that interest rates, at their current level, give the ECB room to respond carefully. She added, “Especially in the current conditions of exceptional uncertainty, we will follow a data-dependent and meeting-by-meeting approach to determining the appropriate monetary policy stance.”

ECB officials unsure if the easing cycle is done

The ECB has already cut rates eight times over the past year. Whether that streak continues is still up in the air. Lagarde said earlier this month that the bank may be nearing the end of its easing cycle. But inside the Governing Council, there’s still debate. Some policymakers believe more cuts may be needed to keep the 20-nation euro area afloat.

The first quarter of 2025 came with a surprise 0.6% economic expansion, which analysts tie to exporters rushing to beat incoming US tariffs. That growth, however, hasn’t been sustained. Fresh data released Monday showed the euro zone’s private sector barely grew in June.

With geopolitical tension and trade uncertainty rising, businesses are holding off on investment, and households are pulling back on spending.

Most market watchers expect the ECB’s deposit rate to stay at 2% when officials meet on July 24, though expectations are building for one more 25 basis point cut before year-end. Lagarde, staying noncommittal, said, “We are not pre-committing to a particular rate path.”

Villeroy and Centeno call for more flexibility and stimulus

Other central bankers are making their own cases. Francois Villeroy de Galhau, a Governing Council member and head of the Bank of France, said last Thursday in Florence that if the ECB acts again in the next six months, the move will likely be another step toward easing.

“Barring a major exogenous shock, including possible new military developments in the Middle East, if monetary policy were to move… it would be more in the direction of accommodation,” Francois said during a speech at the European University Institute.

Even though inflation has cooled back to the 2% target, Francois warned that the job isn’t done. “This return to ‘2 and 2’ should not give way to complacency and passivity,” he said. His push is for the ECB to stay “agile” without being vague or chaotic. He wants the bank to be clear in how it thinks and predictable in what it does.

He also mentioned risks from rising energy prices, which could spill over into broader inflation if they persist. At the same time, the euro’s recent rise against the dollar is helping to cool price pressures. “We need to remain alert and agile in all our next meetings,” Francois said.

On the other side of the Governing Council, Mario Centeno is calling for more stimulus. Speaking to La Stampa, Mario said the eurozone still hasn’t reached a point where the economy can hold a stable 2% inflation on its own. “The level of rates must be compatible with an economy that generates stable inflation at 2%. Today, in my opinion, that economy does not yet exist in the euro area,” he said.

He argued that both supply and demand remain weak, and GDP is below potential. That means the region is operating under capacity. If the neutral rate is at 2%, but the economy is still underperforming, then actual rates should be below neutral to help restore balance, Mario explained.

The ECB’s next move will likely be decided on July 24, but Mario might not be around for it. His term ends earlier in the month, and the Portuguese government hasn’t confirmed if he’ll be reappointed.

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