Lagarde will step down on February 7, giving European Union leaders time to pick a successor well before a French presidential election that polls show far-right candidate Marine Le Pen is favourite to win.
"European Central Bank President Christine Lagarde today informed the Governing Council and the president of the European Council, Antonio Costa, that she will step down from her position on 7 February 2027," the ECB said in a statement on Thursday.
The former central bank governors of the Netherlands and Spain, Klaas Knot and Pablo Hernandez de Cos, are seen as frontrunners to replace Lagarde.
Lagarde's term was scheduled to run until the end of October 2027 but speculation about an early departure had been mounting for months, with the World Economic Forum seen as a likely destination.
The move comes as the ECB is in the middle of a rate-hiking cycle, seeking to prevent an oil-price shock linked to the Iran war feeding into other prices and wages.
But it must also contend with a surge in government bond yields - especially in debt-laden France - that has pushed up borrowing costs for households and businesses and which Lagarde has said will curb growth and inflation.
Caught between persistent inflation fuelled by a renewed surge in energy costs and deteriorating financing conditions, the ECB is widely expected to keep its deposit rate at 2.5 per cent on Thursday while signalling that another increase, potentially as soon as December, remains likely.
The ECB is due to announce its interest rate decision on Thursday, followed by Lagarde's regular media conference.
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