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ECB President Christine Lagarde told the IMF’s International Monetary and Financial Committee on Oct. 17 that the euro area has remained resilient but faces downside growth risks and upside inflation risks from the Middle East conflict and energy prices. She cited the ECB’s September 25-basis-point rate increase and said future decisions will depend on incoming data and the bank’s reaction function.
European Central Bank President Christine Lagarde told the IMF’s International Monetary and Financial Committee on Oct. 17 that the euro area economy has held up amid geopolitical and trade uncertainty, while energy-driven price increases have pushed inflation higher and tilted risks to growth and inflation in opposite directions. Her statement at the IMF Annual Meetings also set out the rationale for the ECB’s 25-basis-point rate increase in September and its approach to future decisions.
Lagarde said the conflict in the Middle East was exposing energy markets to sharp swings, while trade tensions and protectionist measures were weighing on confidence and reshaping trade flows. She described the global economy as surprisingly resilient, with investment in artificial intelligence supporting activity and trade, particularly in economies connected to technology supply chains. The statement said global growth risks were tilted to the downside and inflation risks to the upside.
In the euro area, growth was broad-based across most countries and sectors in the first half of 2026, according to Lagarde. The ECB’s September staff projections put growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. The bank expects domestic demand to benefit over time from recovering real incomes, a resilient labour market and lower energy inflation, alongside government spending on infrastructure and defence and investment in digital technologies.
Euro area headline inflation rose to 3.8% in September, mostly because of energy prices, with food and services inflation also contributing. Core inflation increased slightly to 2.5%. Lagarde said underlying inflation measures were broadly stable and wages had not yet shown a material response to the energy shock. The ECB expects headline inflation to remain well above its target into the first half of 2027 before falling towards target near the end of that year.
The Governing Council raised its key interest rates by 25 basis points in September, following an increase of the same size in June. Lagarde said the council considers the inflation outlook, underlying inflation dynamics and the strength of monetary-policy transmission when setting rates. She also reported that more than 30 central banks had expressed interest in the enhanced EUREP repo facility during the previous six months.
Energy Shock Shapes ECB Policy
The statement connects rising energy costs to two concerns for households, businesses and policymakers: higher near-term inflation and uncertainty about economic growth. If elevated energy prices persist, they could feed into food and other prices, while also weighing on household purchasing power and business activity. Lagarde said the ECB sees no current evidence of significant additional pass-through to wages and other prices beyond what its projections already include.
For monetary policy, the message is that the ECB views the energy shock as too large to ignore, but is not committing to a preset path of rate increases. Lagarde said tighter financing conditions, including higher long-term interest rates, could slow growth and reduce price pressures more than the September projections anticipated. The balance between these forces will matter for future decisions, which can affect borrowing costs across the euro area.
Lagarde also linked resilience to fiscal and structural choices. She said governments should keep any support responding to the energy shock temporary and targeted, and urged countries with high debt to rebuild fiscal buffers. Her statement also pointed to investment, workforce skills and access to risk capital as ways to support longer-term growth.
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Rates, Projections and EUREP
The statement was delivered at the 54th meeting of the International Monetary and Financial Committee during the IMF Annual Meetings on Oct. 17, 2026. The ECB account presents Lagarde’s remarks on behalf of the bank; it is not a new set of staff projections or a separate decision by the committee.
The rate increases referenced in the statement took place in June and September 2026, each by 25 basis points. Lagarde described them as responses made under the ECB’s established framework, which weighs the outlook and risks for inflation, underlying inflation trends and how monetary policy is passing through to the economy. The September staff projections cited in the remarks provide the bank’s stated baseline, while the president emphasized that geopolitical and energy developments leave the outlook uncertain.
Lagarde also discussed EUREP, the Eurosystem repo facility for central banks. The ECB Governing Council decided in July on the enhanced facility’s operational features and onboarding process, according to the statement. The facility is intended to support the transmission of monetary policy and the international role of the euro.
“The global economy has proven surprisingly resilient in the face of high uncertainty.”
— Christine Lagarde, ECB president, in her statement to the IMFC
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Duration of Energy Pressures
The statement does not establish how long or how intensely the Middle East conflict will affect energy markets, nor how far the resulting costs will spread through the euro area economy. Lagarde identified those questions as central uncertainties for the medium-term outlook. The ECB also said risks to growth were tilted to the downside and risks to inflation to the upside, rather than presenting either outcome as certain.
It remains unclear whether energy prices will lead to stronger indirect effects on food and other goods or trigger a more persistent response in wages. The September assessment found no material wage response so far, but that observation does not resolve how prices may evolve in coming months. The statement also did not specify the size or timing of any future rate moves; Lagarde said the Governing Council would assess incoming data.
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Data Will Guide Rate Decisions
The ECB’s next monetary-policy decisions will depend on incoming economic and financial data assessed against its three-part reaction function. The statement gives no commitment to a particular rate path. Developments in energy prices, underlying inflation, wages, growth and financing conditions will shape the council’s assessment.
For the outlook, the ECB expects headline inflation to ease after the first quarter of 2027 as energy inflation falls, with inflation moving towards target near the end of that year. That is the projection described in the statement, not a guarantee. The pace and durability of any change will depend in part on geopolitical developments and how energy costs pass through to other prices.
The ECB has also begun the onboarding process for enhanced EUREP, after setting its operational features in July. Lagarde said central-bank interest in the facility had exceeded 30 expressions of interest over six months. The statement did not provide a timetable for individual central banks to join.
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Key Questions
What did Christine Lagarde tell the IMFC?
She said the euro area had shown resilience but faced higher inflation risks from energy prices and downside risks to growth. She also explained the ECB’s September rate increase and said future decisions would depend on incoming data.
Why did the ECB raise rates in September?
According to Lagarde, the Governing Council raised its key rates by 25 basis points after considering the inflation outlook, underlying inflation and the strength of monetary-policy transmission. The statement also said higher energy prices pointed to increased inflation ahead.
How high was euro area inflation in September?
Lagarde said headline inflation reached 3.8% in September 2026, mostly reflecting energy inflation, with food and services also contributing. Core inflation increased slightly to 2.5%.
Has the ECB committed to another rate increase?
No. Lagarde said future decisions would be based on a comprehensive assessment of incoming data using the ECB’s reaction function. Her statement did not give a timetable or promise further rate moves.
What is EUREP?
EUREP is the Eurosystem repo facility for central banks. Lagarde said the ECB had set operational features and an onboarding process for its enhanced version, and that more than 30 central banks had expressed interest over the previous six months.
Source: primary
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