Christine Lagarde harps on reforms as ECB cuts interest rates again

The European Central Bank (ECB) reduced its key interest rate again Thursday as inflation cools while president Christine Lagarde urged European Union governments to institute sweeping reforms proposed in a "formidable" report by her predecessor Mario Draghi.

The Frankfurt-based regulator cut its key deposit rate a quarter point to 3.5%, as expected, providing further relief to eurozone households and businesses. It was policymakers' second cut, after a move in June to ended a record hiking cycle that began in mid-2022 to tame a surge in consumer prices.

Inflation rates have been easing, and are now only a whisker off the ECB's 2% target. The eurozone economic outlook, meanwhile, has worsened in recent weeks, with the ECB on Thursday slightly trimming its growth forecasts for the coming years.


After the ECB unveiled only its second rate reduction since 2019, Lagarde stressed that progress was being made in the fight against inflation, which was on a "declining path". But she warned that the battle was far from over, with inflation likely to tick up again later this year and fast-rising wages still a threat. She again insisted that the rate path ahead was "not pre-determined".

"We shall be data dependent, we shall decide meeting by meeting," she told a press conference.

The central bank for the 20 countries that use the euro retained its inflation forecasts from its June projections, forecasting the figure would drop below 2% in 2026. The ECB's latest meeting came the week that a key report by Draghi was released, with a call for sweeping reforms to boost the EU economy. "It's a formidable report in that it poses a diagnosis which is severe but which is just in our view," Lagarde said.

The report urged the 27-country bloc to ramp up industrial investment by hundreds of billions of euros per year and boost innovation to keep pace with the US and China. "I very much hope that the executive authorities in charge will actually take it to heart and will see a path towards those structural reforms," she said.

The ECB has been among central banks worldwide which have started cutting rates on the back of falling inflation. While eurozone inflation has been sticky, policymakers have in recent times grown more confident that it is now on a more sustained downward trajectory.

Inflation fell in August
Eurozone inflation fell to its lowest level in more than three years in August, as per official data. Consumer price rises slowed to 2.2% compared to the same month last year, down from 2.6% in July, leaving the figure just a whisker off the ECB's target.