Lagarde backs measured rate increases against energy inflation
Christine Lagarde, President of the European Central Bank (ECB), defended its response to the energy shock at the IMF committee meeting in Bangkok on October 17, 2026. September headline inflation reached 3.8 percent and core inflation 2.5 percent.
Two increases against energy pressures
The Governing Council raised key rates by 25 basis points in September, matching June's increase.
Lagarde said the energy shock warranted a measured response rather than being disregarded.
Decisions depend on the inflation outlook and risks, underlying inflation and monetary policy transmission.
The ECB sees inflation well above target into the first half of 2027, declining after the first quarter and returning to around target toward year-end.
Energy prices have not materially affected wages or spread beyond projected effects.
Higher long-term rates will restrain growth and price transmission more than September projections assumed.
Middle East conflict, Russia's war against Ukraine and extreme weather pose upside inflation risks.
Resilient growth meets financial vulnerabilities
September staff projections put growth at 0.9 percent in 2026, 1.4 percent in 2027 and 1.5 percent in 2028, with downside risks.
Real incomes, infrastructure, defense and AI investment support demand.
Lagarde urged temporary, targeted energy relief and fiscal consolidation where debt is high.
Banks retain strong buffers, but AI concentration, cyber risks and non-bank links create vulnerabilities.
Private credit funds face outflows and redemption gates; direct euro area exposure remains limited.
More than 30 central banks expressed interest in the enhanced Eurosystem repo facility over six months.
Digital money needs legal foundations
Lagarde said adopting digital euro legislation by end-2026 is key to a 12-month internal pilot in the second half of 2027.
Pontes went live on September 21 to support central bank money settlement of tokenised assets.
Appia aims to develop an ecosystem blueprint with common standards, shared infrastructure and European governance.
Source: IMFC Statement
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