FRANKFURT, Germany (AP) 鈥� The head of the defended its June 11 rate hike as justified to ward off real inflationary pressures and said it wasn鈥檛 just a mere 鈥渋nsurance hike.”
ECB head Christine Lagarde said Monday that without the inflation could have lingered above the bank鈥檚 2% target into 2028.
鈥淪ome have characterized our rate increase earlier this month as an 鈥榠nsurance hike,鈥�” Lagarde said. 鈥淚’m sorry to disappoint them. That is not an accurate description. We faced an outlook of rising headline and core inflation.鈥�
The central bank for the 21 countries that use the euro raised its benchmark rate earlier in June by a quarter point to 2.25%, the first rate move in a year. Even with higher rates, inflation is projected to return to 2% only in the last three months of 2027. Euro area annual inflation was 3.2% in May.
Lagarde said, however, that the bank wouldn鈥檛 need the jumbo half-point and three-quarter-point increases that it used to over the war in Ukraine.
Instead, better forecasting means the bank can go meeting to meeting and take a more measured approach as it confronts the fluctuating price pressures from the and the interruption of oil and gas supplies through the Strait of Hormuz. The bank has rate-setting meetings July 22-23 and Sept. 9-10.
The bank responded to the Russian gas cutoff with 鈥渢he fastest tightening cycle in our history, raising rates in increments we had never used before,鈥� she said in the text of a speech at the bank鈥檚 annual monetary policy conference in Sintra, Portugal.
鈥淲e no longer need to act with the same force,” she said. “We can make measured adjustments to rates, calibrated to the shocks we face.鈥�
She said bank forecasters were now using scenarios of milder and harsher outcomes to geopolitical events so that the bank could make sure it doesn鈥檛 over- or underreact. Oil prices have fluctuated wildly during the Iran war, while the European economy has held up better than many expected against headwinds from U.S. President Donald Trump鈥檚 imposition of new tariffs on European imports.
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