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Christine Lagarde told the International Monetary and Financial Committee on Oct. 17 that the euro-area economy has remained resilient, but conflict-driven energy price swings are raising inflation risks. She cited two 25-basis-point ECB rate increases in June and September and said future decisions will depend on incoming data and the bank’s reaction function.
European Central Bank President Christine Lagarde told the International Monetary and Financial Committee on Oct. 17 that energy-market volatility tied to conflict in the Middle East is pushing euro-area inflation higher, while the region’s economy has so far remained resilient. She said the ECB raised its key interest rates by 25 basis points in June and another 25 basis points in September, and would base future decisions on incoming data and its established policy criteria.
In her statement at the 54th meeting of the IMFC during the IMF Annual Meetings, Lagarde described a global economy facing high uncertainty from Middle East conflict, trade tensions and protectionist measures. She said technology investment, particularly related to artificial intelligence, had helped support activity and trade. The ECB’s assessment, she added, was that risks remained tilted toward weaker growth and higher inflation.
For the euro area, the ECB’s September staff projections put growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Lagarde said growth was broad-based across most countries and sectors in the first half of 2026. The projections anticipated support from domestic demand as real incomes recover, as well as government infrastructure and defence spending and investment in digital technologies.
Inflation data in the statement showed headline inflation at 3.8% in September, driven mainly by an energy-price surge, with food and services also contributing to the increase. Core inflation was 2.5%. Lagarde said energy prices were expected to keep headline inflation well above target into the first half of 2027, before it declined and returned to around target toward the end of that year. Those are projections, not a guarantee of how prices will develop.
Energy Prices Shape ECB Policy
The statement connects a geopolitical shock to household and business costs and to the ECB’s interest-rate decisions. Higher energy prices can lift headline inflation directly; if they spill into other prices and wages, inflation could prove more persistent. Lagarde said the bank had not yet seen significant energy-price pass-through to other prices and wages beyond what was already included in its projections.
Interest-rate increases can restrain demand and inflation, but tighter financing conditions can also slow economic activity. Lagarde said long-term interest rates had risen notably since the ECB’s prior meeting and that this tightening would weigh on growth and reduce price pass-through more than the September projections had assumed. That trade-off helps explain her description of a measured response: the ECB is responding to the shock while monitoring its wider effects.
The outlook also matters for fiscal choices. Lagarde called for sound public finances and said any government response to the energy shock should be temporary, targeted and tailored. That approach, as described in the statement, reflects concern that broad or lasting measures could affect public finances even as governments seek to cushion the impact of higher energy costs.
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The ECB’s Rate Decisions
Lagarde’s remarks were delivered at the IMF Annual Meetings on Oct. 17, 2026, in her capacity as ECB president and representative addressing the IMFC. The statement covers the global economy, euro-area activity, inflation, monetary policy and financial stability; the material provided here gives detailed information on the first four areas but does not include a developed account of the financial-stability section.
The ECB’s September staff projections cited in the statement provide the basis for its near- and medium-term outlook. Lagarde said the Governing Council had increased key rates by 25 basis points in June and 25 basis points in September. She outlined three considerations for policy decisions: the inflation outlook and risks in light of economic and financial data, underlying inflation dynamics, and the strength of monetary-policy transmission.
The statement also noted that in July the Governing Council decided on operating features and onboarding for enhanced EUREP, the Eurosystem repo facility for central banks announced earlier in 2026. Lagarde said more than 30 central banks had expressed interest in the facility over the previous six months. The ECB describes EUREP as supporting policy transmission 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 IMFC statement
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How Long the Energy Shock Lasts
The statement does not establish how intense or prolonged the Middle East conflict will be or how far its effects will spread through energy markets and the wider economy. Lagarde said these uncertainties surround the medium-term outlook. The ECB also cannot yet know whether energy prices will produce larger indirect effects on other prices and wages than those already reflected in its projections.
Inflation projections are conditional assessments, and the statement identifies risks in both directions. A more intense or persistent energy shock, or extreme weather that raises food prices, could push inflation higher. A lasting resolution of geopolitical conflicts, weaker energy-cost pass-through or more risk-averse financial markets could lower it. The statement does not provide a new rate path or commit the ECB to a specific future increase.
Although the source heading refers to financial stability, the supplied statement text ends at “Sources of risk and vulnerabilities” without providing that section’s details. No further financial-stability findings or measures can be established from the available material.
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Incoming Data Guide Rate Decisions
Lagarde said the Governing Council would make future monetary-policy decisions after a comprehensive assessment of incoming data using its reaction function. That assessment includes inflation prospects and risks, underlying inflation and the transmission of policy through financial conditions and the economy. The statement gives no date for a next rate decision and makes no commitment about whether rates will rise, fall or remain unchanged.
The ECB’s projections point to inflation easing after the first quarter of 2027 and reaching around target toward the end of the year, but that path depends on how energy prices and other risks evolve. Readers can expect subsequent ECB decisions and updated projections to show whether the bank’s assessment changes; the statement itself does not specify when those updates will be issued.
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Key Questions
What did Christine Lagarde tell the IMFC?
She said the euro-area economy had remained resilient but warned that energy-market volatility and geopolitical conflict were raising inflation risks. She also described the ECB’s recent rate increases and said future decisions would depend on incoming data.
What were euro-area inflation and growth figures in the statement?
Lagarde cited headline inflation of 3.8% in September 2026 and core inflation of 2.5%. The ECB’s September projections put euro-area growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.
Did the ECB commit to another rate increase?
No. Lagarde said the Governing Council would assess incoming data using its reaction function. The statement does not set a future rate path or promise another increase.
Why does the ECB expect inflation to remain elevated?
The ECB expects higher energy prices to keep headline inflation well above target into the first half of 2027 and to feed gradually into food and core inflation. Lagarde also identified uncertainty about the conflict and the scale of any indirect price effects.
What is EUREP?
EUREP is the Eurosystem repo facility for central banks. Lagarde said the ECB decided on enhanced operating features and onboarding in July, and that more than 30 central banks had expressed interest during the preceding six months.
Source: primary
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