Lagarde has held the role, one of the most important in global monetary policy, for more than seven years.

The ECB announced that she had informed the bank and European Council president António Costa that she would stand down on February 7.

She is expected to become chair of the World Economic Forum, whose annual meeting takes place in Davos in January. Lagarde succeeded Mario Draghi in 2019, and her term had been due to run until October 2027.

According to a Bloomberg survey of economists, the favourite to replace her is Pablo Hernández de Cos, a former governor of the Bank of Spain who is now head of the Bank for International Settlements. Others in contention include Dutch central banker Klaas Knot and François Villeroy de Galhau, the former governor of the French central bank.

Lagarde said in a video message: “I leave this institution with a sense of good work done, and an ECB that is fit for the future.” During her time in charge, she had to deal with the Covid-19 pandemic, Russia’s invasion of Ukraine in 2022, the Iran war this year and the French sovereign debt crisis.

French government bond yields rose to their highest level since 2002 because of the uncertainty, driven by street protests in France over demands for more spending on public services. Higher borrowing costs also increased pressure on businesses and households, which raised questions for the ECB.

The central bank has to balance elevated inflation, made worse by the Middle East conflict, with preventing France’s bond market from spilling over into the rest of the eurozone as part of its next interest rate decision.

Lagarde’s decision to finish her term early came hours before the bank’s latest rate decision, in which rates are expected to remain unchanged at 2.5%.