Christine Lagarde says the European Central Bank will not start cutting interest rates in the “next two quarters.”

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The European Central Bank will not start cutting interest rates for at least the “next two quarters,” European Central Bank President Christine Lagarde said.

Lagarde said Financial Times Global Boardroom Eurozone inflation will fall to its 2 percent target if interest rates remain at current levels “for a sufficient period,” the European Central Bank said in a press conference on Friday.

But she added: “This is not the case [means] In the next two quarters we will see a change. “‘Long enough’ should be long enough.”

The European Central Bank last month left its benchmark deposit rate unchanged, ending a string of 10 consecutive increases that took it from a record low of 0.5 percent last year to an all-time high of 4 percent in a bid to tame inflation.

Markets now expect a 75 percent chance of a rate cut by the European Central Bank by April, up from a 30 percent chance in early October.

Lagarde said euro zone inflation could rebound from a recent two-year low, especially if there is another supply shock from the energy sector.

Inflation in the 20-nation single currency area slowed to 2.9 percent in October, down from its peak of 10.6 percent a year ago. But core inflation, which excludes volatile energy and food prices, remained at 4.2 percent – more than double the target set by the European Central Bank.

“We should not assume that this respectable headline rate of 2.9 percent can be taken for granted,” Lagarde said. “Even if energy prices stay where they are, there will likely be a return to higher numbers in the future, and we should expect that.”

Halfway through her eight-year term after replacing Mario Draghi in 2019, Lagarde had to deal with a series of shocks that exposed the fragility of the eurozone economy, including the coronavirus pandemic and Russia’s large-scale invasion of Ukraine.

Lagarde has been criticized for being too slow to address the biggest rise in inflation in a generation, and has overseen the most aggressive increase in interest rates in the history of the European Central Bank.

It is now trying to strike a delicate balance: keeping borrowing costs at a high level long enough to ensure that price pressures are tamed, without causing a destabilizing recession or renewed debt crisis in the region.

The eurozone economy has ground to a halt this year, with gross domestic product shrinking by 0.1 percent in the three months to September after growing just 0.2 percent in the previous three quarters. Some economists believe it may contract again in the fourth quarter.

“We are in this wonderful race against time where the calibration of our monetary policy must be both sustainable and precise,” Lagarde said.

Asked about the fiscal sustainability of some heavily indebted eurozone members, such as Italy – where debt levels have risen to above 140 per cent of GDP – she said: “Many countries have taken advantage of very low interest rates to extend their debt maturities. Lagarde noted that the average cost of debt servicing in eurozone countries is only 1.7 percent.

“But the reality is that there will be refinancings coming as redemptions happen, and the cost of financing will increase,” she added.

Lagarde said she was “somewhat reassured” by early signs that the finance ministers of Germany and France had moved closer this week toward agreeing on new financial rules for EU countries, which she said was “very important” to achieve.

The EU’s Stability and Growth Pact, which governs national spending and borrowing and is widely seen as unenforceable, has been suspended since the outbreak of the pandemic in 2020 but is set to come back into force next year unless a reform is agreed before then.