Lagarde: ECB's October Decision Will Reflect Greater Confidence on Inflation

ECB President Christine Lagarde. (EPA)
ECB President Christine Lagarde. (EPA)
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Lagarde: ECB's October Decision Will Reflect Greater Confidence on Inflation

ECB President Christine Lagarde. (EPA)
ECB President Christine Lagarde. (EPA)

The European Central Bank (ECB) is increasingly confident that inflation will fall back to its 2% target and this should be reflected in its October policy decision, ECB President Christine Lagarde said on Monday.

She said cross-border banking mergers in Europe were "desirable" to boost their competitiveness, just as Italy's UniCredit was looking to increase its stake and possibly take over Germany's Commerzbank.

The ECB cut interest rates from record highs in June, and cut again earlier this month, but Lagarde gave few hints at the time about the bank's next move, leaving markets guessing.

Lagarde's comments on Monday will bolster already abundant bets on a further cut in October given a rapid deterioration of the growth outlook and falling energy costs.

Inflation in the 20-nation currency bloc likely fell below the ECB's 2% target for the first time since mid-2021 this month, a raft of national data suggests.

This, along with poor growth indicators, has raised bets on a 25 basis point rate cut in October and markets now see a 75% chance of a move, up from 25% seen early last week.

Lagarde also acknowledged the recent run of poor growth readings.

“Looking ahead, the suppressed level of some survey indicators suggests that the recovery is facing headwinds,” she told a regular hearing of the Committee on Economic and Monetary Affairs.

Still, she repeated the bank's usual line that the recovery is expected to strengthen and rising real incomes should allow households to consume more.

She added that the labor market, the source of some price pressures via rapid wage growth, remains resilient, even if wage growth is moderating and corporate profits are absorbing some pay increases.

Meanwhile, Lagarde said cross border mergers among Europe's biggest banks are needed, just as Italy's UniCredit was looking to increase its stake and possibly take over Germany's Commerzbank.

“Cross borders mergers -- banks that can actually compete at a scale, at a depth and at range with other institutions around the world, including the American banks and the Chinese banks -- are in my opinion desirable,” she told a parliamentary hearing.

She added that her comments should not be taken as a direct intervention in any particular deal.



Japan’s Ishiba Heads to G7 to Press Trump to Drop Auto Tariffs

US President Donald Trump welcomes Japanese Prime Minister Shigeru Ishiba at the White House in Washington, US, February 7, 2025. (Reuters)
US President Donald Trump welcomes Japanese Prime Minister Shigeru Ishiba at the White House in Washington, US, February 7, 2025. (Reuters)
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Japan’s Ishiba Heads to G7 to Press Trump to Drop Auto Tariffs

US President Donald Trump welcomes Japanese Prime Minister Shigeru Ishiba at the White House in Washington, US, February 7, 2025. (Reuters)
US President Donald Trump welcomes Japanese Prime Minister Shigeru Ishiba at the White House in Washington, US, February 7, 2025. (Reuters)

Japanese Prime Minister Shigeru Ishiba heads to Canada on Sunday for trade talks with US President Donald Trump, hoping to persuade him to drop trade tariffs that have imperiled Japan's auto companies and threaten to undermine his fragile government.

The two are expected to meet on the sidelines of a summit of the Group of Seven nations in Kananaskis, Alberta, for their second in-person encounter. It follows a sixth round of high-level trade talks in Washington on Friday.

Japan's top tariff negotiator, Ryosei Akazawa, said he explored the possibility of a deal in detailed meetings with US Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick.

"I will make every possible effort to reach an agreement that benefits both Japan and the United States," Ishiba told reporters before leaving Japan. The timing of his meeting with Trump was still being discussed between the two countries, he added.

The trick for Ishiba, who spoke with Trump by phone on Friday, will be to get the president to drop the 25% tariff he imposed on Japanese cars, as well as a paused 24% across-the-board levy that Trump calls a reciprocal tariff, without making concessions that could hurt the prime minister's public support at home.

Returning to Tokyo with no deal would be better politically than conceding too much, analysts say.

"If it goes badly, it could even be seen as a positive for Ishiba, standing up to Trump and standing up for his country when he's under assault," said Michael Cucek, a political science professor at Temple University in Tokyo.

Ishiba and his ruling Liberal Democratic Party face an upper house election next month that comes after a lower house loss in November that left him reliant on the support of other parties to stay in power. Another poor electoral result could bring down his government and would force Trump to reset trade talks with a new Japanese administration.

"The most important thing is that Ishiba does not cave in for a bad (auto) deal," said Joseph Kraft, a financial political analyst at Rorschach Advisory in Tokyo. "I expect there will be some kind of deal, although it could be haphazard. Trump needs some good news and I don't think he has much interest in G7 activities."

Failing to reach an agreement in Canada might not have an immediate economic impact on Japan, but tariffs that stay in place will eventually drag down growth, said Asuka Tatebayashi, senior analyst at Mizuho Bank.

"If you look at the data for car exports to the US for April, it was quite striking. The volume in dollars was down by nearly 5%, but the number of cars has increased a lot," she said.

"It means either they are only selling cheap cars or the manufacturers are absorbing the cost. I think the latter is the case and this is not very sustainable."

Tariffs could shave 0.9% off Japan's gross domestic product, Mizuho Research & Technologies estimated in a report in April.