While the highly-anticipated move has already helped to boost Europe’s flagging housing market, economists warned the ECB not to “declare victory on inflation”.
Sporting a gold necklace emblazoned with the words “in charge”, Ms Lagarde agreed that the fight was not over as she stressed that decisions on future rate cuts would be taken “meeting by meeting”.
“Let there be no doubt about our determination to tame inflation and restore price stability,” she told reporters on Wednesday.
“There is one thing I have learned in this job and that is we have to be persistent, we have to be determined, we have to be data dependent, but we cannot give up on the objective.
“And our objective is to tame inflation and to bring it back to 2pc in the medium term.”
While Ms Lagarde admitted that the task of taming inflation had led to “sleepless nights”, she said there was also a risk that inflation could fall much faster. Noting that inflation had halved each year over the past two years to 2.6pc today, Ms Lagarde added: “I don’t want to divide inflation again by two. We don’t want to go there.”
Analysts said pay pressures across the bloc were likely to keep inflation higher for longer, limiting the number of rate cuts this year. Ms Lagarde said policymakers were watching pay closely.
“Wages matter enormously,” she said.
It also comes against a backdrop of falling borrowing costs around the world, with the Swiss becoming the first major Western economy to cut interest rates in March, lowering its main policy rate by 0.25 percentage points to 1.5pc.
In May, Sweden’s central bank followed suit, while the Bank of Canada lowered rates to 4.75pc on Wednesday, becoming the first G7 central bank to do so.
The ECB said the decision to reduce borrowing costs reflected a “marked” easing of price pressures in the economy, with inflation currently at 2.6pc, down from a peak of 10.6pc at the end of 2022.
However, acknowledging that high inflation has not been vanquished, policymakers conceded that “domestic price pressures remain strong”, with inflation “likely to stay above target well into next year”.
The ECB now believes inflation will average 2.5pc this year, up from 2.3pc in its last forecast in March.
Price rises are expected to average 2.2pc in 2025, up from a prediction of 2pc previously. This suggests inflation will not fall back to its 2pc target for more than a year.