The European Central Bank is increasingly confident that inflation will return to the 2% target and this is expected to be reflected in monetary policy decisions in October, ECB President Christine Lagarde said on Monday.
The ECB cut interest rates from record highs in June, and cut further earlier this month. However, Lagarde did not give much indication of her next move, leaving the market increasingly guessing.
His remarks on Monday fueled speculation for an interest rate cut in October following a sharp slowdown in economic growth and falling energy costs.
"The latest developments reinforce our confidence that inflation will return to target, in time," Lagarde said in a parliamentary hearing in Brussels. "We will take this into account at our next monetary policy meeting in October."
Data from several countries showed that inflation in the 20-nation currency bloc is likely to fall below the ECB's 2% target for the first time since mid-2021 this month.
This, along with weak growth indicators, has raised expectations for a 25 basis point interest rate cut in October, with the market now seeing a 75% chance, up from the 25% expected earlier last week.
Lagarde also acknowledged a recent series of weak growth readings.
"Looking forward, the low level of several survey indicators shows that the recovery is facing obstacles," he said in a regular hearing session of the Economic and Monetary Affairs Committee.
However, he reiterated the usual stance that the recovery is expected to strengthen and that rising real incomes will allow households to spend more.
He also added that the labor market, a source of price pressure through rapid wage increases, remains strong, even as wage growth slows and corporate profits absorb some of the wage increase.
