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.
