ECB’s rate cut direction clear, pace up for debate, Lagarde says

WASHINGTON (Reuters) -Euro zone inflation is easing and may fall back to 2% quicker than previously thought, supporting the case for further European Central Bank rate cuts, ECB President Christine Lagarde said on Tuesday.

The ECB has already cut rates three times this year from a record high, and markets see policy easing at each of its upcoming meetings well into next spring.

“I’m absolutely confident that we will reach that target sustainably in the course of 2025,” Lagarde told a Bloomberg Newsmaker event.

When asked if this could happen sooner than the ECB’s last projection – the final quarter of 2025 – she said: “That would be my hope.”

Still, she argued that caution was warranted and the ECB was not yet in position to declare victory.

Lagarde said this made the direction for policy “clear” but that the pace of further cuts in the 3.25% deposit rate remained dependent on incoming data.

Lagarde also sidestepped questions on the destination for rate cuts, arguing that the so-called neutral rate, which neither stimulates nor slows the economy, was not clear-cut.

The neutral rate is seen by economists at around 2% or 2.25%. Lagarde argued that it was probably higher now than a few years ago, but below the current rate, which was still clearly restrictive.

“So if you were to ask me today, ‘Where is it?’, the honest answer is, I don’t know,” Lagarde said.