Lagarde stated that the ECB is likely to reduce rates in the near future, unless there are significant unexpected developments. She also emphasized the ECB's close monitoring of oil prices.

Lagarde noted the ECB's inclination to lower rates soon, barring significant unforeseen developments. She highlighted the bank's vigilant observation of oil prices, indicating their potential impact on monetary policy decisions. This stance suggests a proactive approach to managing economic conditions and ensuring stability in the Eurozone.

KEY POINTS

1. Christine Lagarde, speaking to CNBC's Sara Eisen during the IMF Spring Meetings, noted the ongoing disinflationary trend, which aligns with the ECB's projections.
2. Lagarde expressed the need to bolster confidence in the disinflationary trajectory. However, she emphasized that barring any significant unforeseen events, the ECB is moving towards a phase where it may need to temper its restrictive monetary policy.
3. Lagarde's remarks follow closely after the European Central Bank signaled a potential interest rate cut at its upcoming June meeting, marking its strongest indication yet of potential monetary policy adjustments.

European Central Bank President Christine Lagarde stated on Tuesday that the bank is still planning to reduce interest rates in the near future, pending any significant disruptions.

Lagarde emphasized the ECB's close monitoring of oil prices amidst concerns about potential spillover conflicts in the Middle East. However, she noted that the reaction to the recent Iran-Israel tensions had been relatively subdued.

These remarks followed the ECB's recent indication that it might initiate interest rate cuts at its June meeting.

Lagarde highlighted the ongoing disinflationary trend, indicating that it aligns with the ECB's expectations. She emphasized the need to bolster confidence in this trend, suggesting that, barring any unforeseen shocks, the bank is moving towards a phase of moderating its restrictive monetary policy.

Lagarde expressed that, given the absence of further unexpected developments, it would be appropriate to adjust the restrictive monetary policy relatively soon.

The ECB recently maintained its record-high interest rates for the fifth consecutive meeting but signaled potential upcoming adjustments due to cooling inflation. Notably, the ECB suggested that lowering its 4% deposit rate could be suitable if underlying price pressures and the effects of previous rate increases contributed to increased confidence in inflation returning to its 2% target over a sustained period.

In previous communications, the central bank had not directly addressed the possibility of easing monetary policy.

When questioned about the potential for subsequent rate cuts following a June reduction, Lagarde emphasized the central bank's stance of not committing to a specific rate path.

She stressed the significant uncertainty surrounding current developments and the importance of closely monitoring data to inform decisions.

Lagarde opted not to offer a comment on whether the market's anticipation of three ECB rate cuts this year was reasonable.

Market observers and economists have identified June as a likely starting poit for rate reductions, particularly following a downward revision of the ECB's medium-term inflation outlook. The euro zone has seen a more pronounced cooling of price increases than anticipated in March.

Regarding the central bank's confidence in continued inflation decline amid potential spikes in commodity prices, especially in the event of oil price surges due to geopolitical tensions, Lagarde emphasized the need for close attention to all commodity price movements. She acknowledged the direct and swift impact of energy and food prices on inflation.

‍The most significant risks originate from geopolitical factors.

Earlier on Tuesday, Olli Rehn, a policymaker at the European Central Bank (ECB), stated that the possibility of a rate cut in June depends on inflation decreasing as anticipated. He emphasized that the primary risks to the ECB's monetary policy originate from tensions between Iran and Israel and the ongoing conflict between Russia and Ukraine.

Rehn, who also serves as the governor of the Bank of Finland, stated, "As summer approaches we can start reducing the level of restriction in monetary policy, provided that inflation continues to fall as projected." He highlighted the geopolitical risks, stating, "The biggest risks stem from geopolitics, both the deteriorating situation in Ukraine and the possible escalation of the Middle East conflict, with all their ramifications."

The recent large-scale air attack by Iran on Israel over the weekend has heightened concerns about the potential escalation of the conflict in the Middle East. Israeli authorities have vowed to retaliate, and world leaders are urging restraint to prevent further escalation.

Meanwhile, there is speculation that the ECB may consider rate cuts despite a decrease in expectations for rate reductions by the Federal Reserve. Traders now see only a 20% chance of a Fed rate cut in June, following the release of another inflation report indicating persistent consumer price pressures.

Source: CNBC