ECB's Lagarde resigns early so she can speak freely on topics beyond monetary policy

By Reuters

October 29, 20268:05 AM MST Updated 10 mins ago

FRANKFURT, Oct 29 (Reuters) - European Central Bank President Christine Lagarde said on Thursday she had decided to step down eight months before her term was due to expire so that she can speak more freely on issues beyond monetary policy.

Lagarde, 70, has led ‌the ECB since November 2019 and previously headed the International Monetary Fund. Her term would otherwise have run until October 2027.

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"There is never a good time to leave," Lagarde told a press conference. "But it's embedded in the governance of the ECB that presidents, board members have to leave because they cannot be up for renewal."

Lagarde said the ⁠decision to leave early was driven by a wish to engage on issues outside the ECB's mandate.

"I want to have the freedom of speech, the freedom of expression and the freedom to engage on matters that are not monetary policy matters," she said.

ECB Governing Council meeting in Frankfurt

She noted that ECB officials are bound by strict rules of neutrality: "We have an obligation of neutrality, we comment on the situation with the focus on monetary policy," Lagarde said, adding that the mandate is "the price we pay for being independent."

Lagarde said she no longer felt comfortable staying silent on ‌broader ⁠global issues. "I'm interested in the truth, and I see the truth being very often damaged, contradicted by misrepresentation," she said, without elaborating.

Drawing on more than two decades in international economic and financial roles, Lagarde said she believed she had something to contribute beyond central banking. "There are things that I can ⁠say — whether people will listen or not is another story. But I feel that I should say those things and I cannot do so in my current position," she said.

Lagarde sought to reassure markets ⁠and staff that her early departure would not disrupt the central bank's operations. "A process has already started to identify my successor," she said, adding there were "plenty of excellent candidates — much ⁠better than me, actually."

She dismissed concerns about continuity. "Don't worry about decision making in limbo — no, absolutely not," Lagarde said. "The institution is solid, strong, like a rock, and it will continue being so."

Reporting by Balasz Koranyi; Writing by Hugh Lawson; Editing by Catherine Evans

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By Reuters

October 29, 20266:23 AM MST Updated 56 mins ago

FRANKFURT, Oct 29 (Reuters) - The European Central Bank left interest rates unchanged in a well-telegraphed move on Thursday but maintained expectations for another hike in December with a warning that high and rising energy costs were fuelling ‌inflation risks.

The ECB has raised rates twice this year to prevent an Iran war-induced energy price jump from becoming entrenched and has signalled that more may be needed, even if it was not in a hurry without evidence of dangerous second-round inflation effects.

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In a decision published only hours after ECB President Christine Lagarde announced she would step down early, the ECB warned risks to inflation were skewed to the upside given a recent surge in oil and gas prices.

"Energy prices have continued to rise, posing upside risks to ⁠the inflation outlook and downside risks to the growth outlook," the ECB said in a statement.

Lagarde repeated during her post-meeting press conference that underlying inflation had remained broadly stable and wages had not shown "a material response" to higher prices although "the increased magnitude and duration of the energy shock" were likely to drive up inflation and undermine growth.
It meant that data and developments over the six weeks before the ECB's final meeting of the year would be key.

"The interim meeting period will be information-rich," Lagarde said. "That will actually help us determine whether the situation that we see now, which could have warranted a hike, is going to be confirmed, and in that case the sense of direction is quite clear."

FRANCE DEBT MARKET TENSIONS

Lagarde's resignation comes as the ECB is battling to prevent high global energy prices developing into a longer-term inflation ‌problem for ⁠the euro zone.

European flags are seen in front of the ECB building, in Frankfurt

It is also having to contend with sharp rises in government borrowing costs — especially in debt-laden France — that have triggered questions about whether it would step in if the market moves threatened to get out of control.

"Should market developments threaten the smooth transmission of our monetary policy, including through unwarranted and disorderly market movements, we have instruments available to respond," Lagarde said.

Economists have warned the increase in borrowing costs is likely to curb the flow of credit ⁠and slow the economy. France is now having to pay a decades-high 155 basis point premium over Germany to borrow for 10 years.

"Financing conditions have tightened since the Governing Council's last meeting, which is likely to weigh on inflation and growth," the ECB's statement said.

The central bank will have to walk a ⁠narrow path in the months ahead.

Lagarde said that bond market yields were likely to stay high for heavily indebted euro zone members, which the ECB needed to take into account.

While it must prevent high inflation from becoming embedded — price growth is already twice its 2% target — ⁠the ECB also wants to avoid setting off turbulence in markets that could induce a recession or broader financial instability.

This is why the vast majority of economists polled by Reuters see just one or two more hikes before the current tightening cycle ends.

"What is driving us is the price stability mandate that we have," Lagarde said."

Reporting by Balazs Koranyi and Francesco Canepa; Editing by Catherine Ev

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