European Central Bank President Christine Lagarde has signalled that the institution is prepared to continue raising interest rates to combat persistent inflation, asserting that the eurozone economy can absorb further tightening without severe damage. Speaking at a recent event, Lagarde emphasized that the ECB’s primary mandate—price stability—remains non-negotiable, even as some member states face slowing growth.
Lagarde stated that the fight against inflation is not over. While headline inflation has eased, core inflation remains stubbornly above the 2% target. “We can raise rates further if needed, and we should not be afraid to do so,” she said, reinforcing a hawkish tone. The ECB has already lifted its benchmark deposit rate to 4%, a historic high, and Lagarde’s comments suggest another increase at the next policy meeting remains a live option, depending on incoming data.
This comes as a new analysis from ING predicts one final 25-basis-point rate hike at the ECB’s upcoming meeting, after which the central bank will likely adopt a wait-and-see approach. ING analysts note that core inflation remains stubbornly high, but with the economy showing clear signs of weakness, the governing council will opt for one more hike before pausing. The ECB’s communication has consistently been hawkish, signalling the fight against inflation is not yet won.
The eurozone economy narrowly avoided recession, but growth is tepid, particularly in Germany. Manufacturing output has contracted, yet Lagarde pointed to a resilient labour market with historic low unemployment and gradual wage catch-up. She argued that the ECB’s models show the economy can withstand further tightening without a severe downturn, but the peak of the tightening cycle may still be ahead.
For markets, Lagarde’s remarks and ING’s forecast reinforce expectations that interest rates will stay higher for longer. Bond yields have edged up, and the euro has strengthened modestly. For consumers and businesses, borrowing costs—from mortgages to corporate loans—are unlikely to decline soon, while savers may see slightly better returns on deposits. The ECB remains data-dependent, watching core inflation and wage developments closely.
