European Central Bank President Christine Lagarde indicated that while policymakers discussed but ultimately rejected an interest rate hike at Thursday's meeting, the central bank will consider the possibility of raising rates at its June meeting.
Lagarde stated, "We made a prudent decision in a context where information remains insufficient. We discussed the decision that was adopted unanimously today, and we also had a thorough and extensive discussion on the option of a potential rate hike."
When asked if a rate hike in June was likely, which is widely anticipated by investors and analysts, she said the coming six weeks would provide a suitable period to assess the economic situation, enabling a prudent decision based on verified and re-examined information.
The ECB President noted that the eurozone economy is "clearly drifting away" from the central bank's baseline scenario, and policymakers discussed various options, including a potential rate increase, during their meeting in Frankfurt. She made these remarks during a press conference following the bank's decision to maintain the deposit rate at 2%.
Lagarde pointed out that current data does not yet provide "convincing evidence" warranting a tightening of monetary policy. Although rising oil and gas costs are "certainly" present, they have not yet triggered a so-called "second-round effect." Meanwhile, economic growth in the region has already begun to feel the impact.
The ECB is not the only central bank holding steady: the U.S. Federal Reserve kept rates unchanged on Wednesday, and the Bank of England also decided to refrain from action earlier on Thursday.
The ECB maintained its deposit rate at 2%, stating in its official release that "both upside risks to inflation and downside risks to growth have intensified. The Governing Council remains equipped to deal with the current uncertainty."
The ECB also acknowledged downside risks to economic output. Data released shortly before the rate decision showed that eurozone first-quarter GDP grew by just 0.1%, falling short of expectations and heightening concerns about "stagflation." However, Lagarde downplayed these worries.
She commented, "We are not using the somewhat catchy term 'stagflation' for the current situation. We associate it more with the situation in the 1970s."
Markets, however, believe policymakers will focus more on upside inflation risks. Due to rising energy costs, the inflation rate rose to 3% in April, its fastest pace since the autumn of 2023. Traders currently anticipate three 25-basis-point increases in borrowing costs by the end of this year.
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