FRANKFURT, Sept 30 (Reuters) - The European Central Bank (ECB) is increasingly confident that inflation will fall back to its 2% target, ECB President Christine Lagarde stated during a parliamentary hearing in Brussels on Monday. This assertion is expected to influence the bank's upcoming monetary policy decision in October.
The ECB has already cut interest rates from record highs in June and again earlier this month, and Lagarde's comments are likely to strengthen market expectations for another cut. Current indicators suggest that inflation in the 20-nation eurozone may have dipped below the ECB's target for the first time since mid-2021.
Lagarde noted that the recent economic data points to a deteriorating growth outlook, which, combined with falling energy costs, has raised the likelihood of a 25 basis point rate cut in October. Markets now estimate a 75% chance of this move, a significant increase from the 25% probability seen just a week earlier.
Despite acknowledging the challenges ahead, including poor growth readings, Lagarde maintained that the recovery is expected to strengthen over time, supported by rising real incomes that should encourage household consumption. She also highlighted that the labor market remains resilient, even as wage growth moderates and corporate profits absorb some of the increases in pay.
Reporting by Balazs Koranyi; Editing by Francesco Canepa and Christina Fincher.