The European Central Bank keeps policy rates unchanged Lagarde: The structure of the eurozone economy is changing Inflation uncertainty higher than normal

The European Central Bank announced on Thursday that it will maintain its key policy interest rates unchanged and expressed a more positive outlook on the economic prospects of the euro area, believing that amidst escalating global trade tensions and geopolitical uncertainties, the euro area economy is showing some resilience. Following the announcement, ECB President Lagarde responded to various economic, inflation, monetary policy, and market-related issues at a press conference. Regarding the discussion about the EU using frozen Russian assets to support Ukraine, Lagarde stated that this issue falls within the realm of European political leadership and foreign policy, and is not within the mandate of the central bank. She emphasized that the ECB's responsibility is to ensure that any political decisions are in line with EU treaties, respect international law, and do not undermine financial stability, and she would not comment further on the matter. On the topic of the digital euro, Lagarde stated that the ECB is still progressing with relevant work, but the key lies in whether the European Council and future European Parliament will approve the proposal put forward by the EU Commission and turn it into legislation. She pointed out that in the digital age, central bank money needs to continue to serve as a stable anchor for the financial system in digital form, and the digital euro embodies this monetary sovereignty in the digital era. Regarding inflation and wage issues, Lagarde acknowledged that wage growth in recent months has been "higher than expected," but she also expects wage growth to exhibit a mild decline in the future. She noted that the speed at which service sector inflation declines to some extent depends on whether wage pressures weaken as expected. As for the selection of the next ECB President, Lagarde stated that she has no preferences and will not comment on the nationality or candidates of the candidates. She mentioned that this decision will be made by the European Council and stressed that the multitude of candidates willing to take up the position reflects the importance and attractiveness of the role. Discussing investment trends, Lagarde pointed out that surveys show that current investment growth is largely related to artificial intelligence, mainly reflected in increased computing power, communication infrastructure, and investments in intangible assets, rather than traditional capital expenditures. On the communication of monetary policy, Lagarde explicitly stated that in the current highly uncertain environment, the ECB cannot provide forward guidance. She noted that whether it is geopolitical risks, changes in the global trade landscape, or trade and production capacity issues near the European borders, the future path is filled with uncertainty, and the central bank can only stick to a "meeting-by-meeting, data-dependent" decision-making approach. Lagarde believes that the structure of the euro area economy is undergoing changes, with recent outperformance driven primarily by investments rather than just public sector spending. She pointed out that the euro area economy grew by 0.3% in the third quarter, mainly benefiting from a rebound in consumption and investment, demonstrating overall economic resilience. In terms of inflation prospects, Lagarde stated that uncertainty remains higher than usual. She mentioned that if the US increases tariffs to curb euro area export demand, or if surplus capacity countries increase exports to the euro area, coupled with a stronger euro, inflation may be lower than expected. Meanwhile, further fragmentation of global supply chains, restrictions on key raw material supplies, increased defense and infrastructure spending, and slow easing of wage pressures may push up inflation in the medium term. She stated that the rate decision this time was unanimously passed, and the committee agreed that the current policy stance is "appropriate," but this does not mean the policy path is fixed. All policy options will remain open, and future rate adjustments will not be set on a predetermined path or timetable. Lagarde emphasized that future rate decisions will be based on an assessment of inflation prospects and risks, taking into account the latest economic and financial data, potential inflation trends, and the effectiveness of monetary policy transmission. The ECB will be ready to adjust all policy tools within its mandate at any time to ensure stable inflation returning to the target of 2% in the medium term and to maintain the smooth transmission of monetary policy. Regarding the medium to long-term inflation path, Lagarde stated that inflation is expected to continue to decline in the short term, mainly due to the gradual exit of previous energy price increases from year-on-year calculations. ECB staff predict that average inflation rates will be below 2% in 2026 and 2027, with energy inflation mostly negative and inflation excluding energy gradually decreasing. In this context, inflation is expected to return to the target level in 2028 as energy inflation significantly recovers. In terms of the global environment, Lagarde pointed out that despite some easing in trade tensions, the international environment remains volatile, which may disrupt supply chains, suppress exports, and drag down consumption and investment. If global financial market sentiment deteriorates, it may lead to tightening financing conditions, lowered risk appetite, and weaken economic growth. She also mentioned that geopolitical risks, particularly the war between Russia and Ukraine, remain a major source of uncertainty, but defense and infrastructure spending, as well as reforms to improve productivity, could bring unexpected growth momentum. Lastly, Lagarde reiterated that the euro area economy is exhibiting some resilience, but challenges from the global trade environment are expected to continue to weigh on growth this year and next.