Lagarde says ECB was ready to raise rates as early as April

European Central Bank President Christine Lagarde doubled down on the bank's June interest rate increase, telling French newspaper Les Echos on Thursday that "we are convinced we made the right decision," even as new data shows eurozone inflation cooling faster than expected.investing

Lagarde revealed that policymakers were prepared to move sooner. "As early as April, a large majority of the Governing Council was ready to make a decision but we didn't have all the necessary information," she said in the interview. The ECB held rates steady at its April 30 meeting before raising its three key rates by 25 basis points on June 11, lifting the deposit facility rate from 2% to 2.25% — its first hike since September 2023.reuters+2

Easing Prices Shift the Debate

The defense comes at a delicate moment. Eurozone inflation slowed to 2.8% in June from 3.2% in May, flash data from Eurostat showed on Wednesday, undershooting forecasts of 3%. Germany, France, and Italy all posted weaker-than-expected readings, with French inflation dropping back to the ECB's 2% target. The surprise cooldown has eased pressure on the bank to follow up quickly with another hike, and several policymakers have said there is no rush to act again at the July 23 meeting.reuters+3

Oil prices have fallen sharply since the U.S. and Iran reached a framework peace accord on June 14, which included provisions to reopen the Strait of Hormuz. Energy — the primary channel through which the war stoked inflation — is now running in reverse, though analysts caution that second-round effects on wages and services prices may linger.nytimes+2

Supply Shock Still Spreading

Lagarde acknowledged the shift but struck a cautious tone. "We are facing an external supply shock that is spreading through the rest of the economy, and we are now seeing its indirect effects," she told Les Echos. "We are also paying close attention to the risk of second-round effects, even though they have not materialized so far".investing

The ECB was the first G7 central bank to raise rates in response to the Iran conflict, acting a week before policy decisions from the Federal Reserve and the Bank of England. At the Sintra central banking forum on June 29, Lagarde had already pushed back against characterizations of the move as a mere "insurance hike," saying the rate increase was warranted under all three staff scenarios and that without it, inflation could have stayed above 2% into 2028.thehill+3

What Comes Next

Markets are now pricing in one to two additional quarter-point increases by year-end, with September seen as the likeliest window. BNP Paribas Asset Management's base case remains for two hikes in 2026 — June and September — followed by an extended pause through 2027. But the faster-than-expected drop in inflation could test that outlook, leaving the Governing Council to weigh fading energy pressures against the risk that price growth has already embedded itself more broadly in the economy.global.morningstar+1