ECB's Lagarde hints at further rate cut as inflation moderates

European Central Bank (ECB) President Christine Lagarde expressed confidence in Brussels on Monday that inflation could soon return to the bank's target level and did not rule out a further interest rate cut.

"Looking ahead, inflation might temporarily increase in the fourth quarter of this year as previous sharp falls in energy prices drop out of the annual rates, but the latest developments strengthen our confidence that inflation will return to target in a timely manner," Lagarde told a European Parliament's economic and monetary affairs committee.

"We will take that into account in our next monetary policy meeting in October. The ECB staff projections from September foresee inflation to average 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026," she said.

Her comments were seen as the clearest indication yet of a possible cut in October.

The bank's mid-term inflation target is 2%. Lagarde and other ECB bankers had previously made clear that further cuts depended on the economic data.

The bank cut its key rate in September for the second time following a surge in inflation, after indicating a change in rate policy in June.

The current key interest rate, the deposit rate, was cut by 0.25 percentage points to 3.50%.

Eurozone inflation data have moderated recently. Inflation fell noticeably in France and Spain in September to well under the 2% mark.

German data published on Monday afternoon also showed a decline to an annual rate of 1.6%. Eurozone figures, set to be published on Tuesday, are expected to reveal a further dip in inflation.