The European Central Bank President, Christine Lagarde, defended the decision to raise interest rates for the first time in a year as a way to cool inflationary pressures.
At the last ECB council meeting in June, the benchmark rate rose by a quarter point to 2.25%. The last check in May placed eurozone inflation at 3.2%, with a projection of a drop to 2% in the first three months of 2027.
Lagarde said Monday during a monetary policy conference in Portugal that the decision allows the bank to keep inflation at bay, preventing it from rising above the 2028 target of 2%. She pushed back against criticism that the increase was “an ‘insurance hike’”, saying that “it is not an accurate description. We faced an outlook of rising headline and core inflation.”
Another argument she used to explain the choice was the changes in the policies compared to when Russia cut off gas supplies due to the war in Ukraine. Then the ECB aggressively raised interest rates to cope with double-digit inflation. Now, the ECB has better forecasting models that allow for more accurate checks of possible milder or harsher outcomes in geopolitical scenarios and for action accordingly.
The ECB will meet again for rate-setting on July 22-23 and on September 9-10.
This article used information from The Associated Press.
