European Central Bank remains unchanged. Lagarde: Forecasting Euro's strength, AI investment aids growth.

The European Central Bank maintained its interest rates unchanged as scheduled on Thursday, without giving a clear signal on the next policy direction, reinforcing market expectations of stable monetary policy for a period of time. The current economic growth in the euro area is relatively robust, with inflation close to target levels, providing room for a "wait and see" policy. At the press conference following the policy meeting, ECB President Lagarde discussed economic prospects, AI investment, inflation risks, and exchange rates. Lagarde pointed out that AI investment is one of the "good news" for the current European economy. She stated that while there has been some improvement in consumption, investment is the more prominent highlight, especially the capital expenditure surrounding the AI industry chain, including data center construction, licensing approvals, software and hardware, which is bringing considerable capital expenditure. Regarding the impact of AI on inflation, Lagarde believes that the key lies in whether productivity can significantly improve. If productivity improves, the inflationary impact of AI may be restrained, but this process still needs time to gradually unfold. In terms of promoting growth and improving productivity, Lagarde revealed that she will write to the leaders of EU countries, the President of the European Commission, and the President of the European Council, proposing a "list" covering topics such as savings and investment alliances, digital euro and tokenization of wholesale central bank currency, deepening the single market, promoting innovation, maintaining open strategic autonomy, simplifying legislation and strengthening institutional frameworks. She emphasized that while the central bank can only fulfill its monetary policy responsibilities, Europe still needs deeper and faster structural reforms to fully unleash its potential. When asked about the nomination of Kevin Warsh as the Federal Reserve Chairman by U.S. President Trump, Lagarde welcomed the nomination, stating that she has known him since the global financial crisis and welcomes the appointment. Regarding the inflation situation, Lagarde stated that it is currently "in a good position" and overall inflation levels are good. She pointed out that underlying inflation indicators have not changed significantly in recent months and remain consistent with the 2% medium-term target, but in the backdrop of highly volatile global policy environment, the uncertainty regarding inflation outlook remains high. In terms of risk assessment, Lagarde stated that the current inflation risks are "overall balanced". On one hand, energy prices continue to rise, global supply chains further fragment, key raw material supplies are constrained, and defense and infrastructure spending plans could all potentially push up inflation in the medium term; on the other hand, tariffs could weaken Eurozone export demand, excess capacity countries could increase exports to Europe, and a stronger euro and increased financial market volatility could put downward pressure on demand and inflation. Regarding exchange rates, Lagarde reiterated that the ECB does not target exchange rates as a policy objective but will closely monitor their impact on inflation. She pointed out that since March 2025, there has been a noticeable depreciation of the dollar against the euro, and the impact of a stronger euro has been incorporated into baseline forecasts, but the central bank will still observe its transmission effects. On wages, Lagarde stated that negotiations on wage growth and forward-looking indicators show that labor costs continue to slow, but there is still uncertainty about the impact of non-wage extra payments on overall wage growth. Long-term inflation expectations mostly remain around 2%, which helps keep inflation stable around the target. Looking ahead to economic growth, Lagarde stated that the services industry remains the main driver, with the information and communication sector performing well; the manufacturing industry has shown resilience amid global trade and geopolitical uncertainties, and the construction industry momentum is also picking up. However, she also pointed out that high tariffs and the past year's appreciation of the euro have made the external environment still challenging.