Lagarde defends ECB rate hike, hints at French political ambitions

European Central Bank President Christine Lagarde has strongly defended the central bank's decision to raise interest rates in June, telling French newspaper Les Echos that "we are confident that we made the right choice," even as a ceasefire between Iran and the United States just ten days after the decision raised questions about whether the move was necessary.ecb.europa

A Decision in the Making Since April

In the interview, published on July 2, Lagarde revealed that "as early as April, a large majority of Governing Council members were already prepared to take a decision" but that the ECB "still didn't have all the necessary information" at the time. The ECB held rates steady at its April 30 meeting before raising all three key interest rates by 25 basis points on June 11, bringing the deposit facility rate to 2.25%.ecb.europa+2

The hike — the ECB's first since September 2023 — was driven by the ongoing conflict in the Middle East, which has pushed up energy costs and fueled broader inflationary pressures. Eurozone inflation accelerated to 3.2% in May, well above the ECB's 2% target, while core inflation rose from 2.2% to 2.5%.ecb.europa+3

Supply Shock Spreading Through the Economy

Lagarde warned that the external supply shock is "currently spreading to the rest of the economy" and that indirect effects are already visible. She pointed to services inflation running at 3.5%, above the 3% that had been projected, and said the ECB is "keeping a close eye on the risk of second-round effects, even though they have not yet materialised."ecb.europa

She also pushed back against characterizations of the move as an "insurance hike," a point she first made at the ECB's annual forum in Sintra, Portugal in late June. The decision, she argued, held up even under the most favorable scenario of the war ending and oil prices falling.wsj+1

What Comes Next

On the prospect of further rate increases, Lagarde offered no firm guidance. "I honestly don't know," she said, reiterating the ECB's data-dependent, meeting-by-meeting approach. Markets and economists are broadly pricing in a second 25-basis-point hike at the ECB's September 10 meeting, which would bring the deposit rate to 2.50%.global.morningstar+2

The interview also drew attention for Lagarde's remarks on French politics, where she did not rule out leaving her post before her term ends in October 2027 to participate in the French presidential debate — though she said the ECB's "captain must stay on board" during the current turbulent period.ecb.europa+1