The President of the European Central Bank has stated that the decision to raise interest rates last month was the correct one.
In an interview, ECB President Christine Lagarde said the institution is convinced it made the right choice. She noted that a large majority of the Governing Council had been prepared to act in April, but lacked all the necessary information at that time.
Assessing the Economic Impact
Last month, the ECB became the first central bank among the G7 nations to raise interest rates following the outbreak of conflict in Iran. The bank stated at the time that the associated supply shock was gradually spreading through the wider economy, and it could not risk allowing inflation to get out of control, hence the decision to hike.
However, since then, a peace agreement between the US and Iran has led to a significant drop in international oil prices, removing a key factor that had been driving inflation higher. The latest data released on Wednesday showed eurozone inflation slowed more than market expectations. This has led to a split within the ECB over the need for further rate increases.
Monitoring for Secondary Effects
Lagarde indicated that the supply shock is still transmitting to other parts of the economy, though the so-called "second-round effects" have not yet materialized. She described the situation as an external supply shock that is diffusing through the economy, with indirect impacts already visible. The ECB is closely monitoring the risk of second-round effects, she added, though these have not appeared so far.
Commitment to Leadership
When asked about the possibility of leaving the ECB early, Lagarde reaffirmed her previous stance. She stated that during the current renewed period of turbulence, she believes the captain of the ECB ship should remain at the helm.
Regarding a potential role in next year's French presidential election, she said she believes "a European voice should be heard." Lagarde added that if the debate moves in a direction that weakens France's commitment to Europe, she feels it is necessary to point out that this would be a painful path for the country and its citizens.
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