No need for ‘forceful’ rate rises: ECB’s Lagarde

Eurozone inflation is under control and uncertainty has been eased by US-Iranian efforts to end the war, reducing the need for “forceful” rate rises, ECB President Christine Lagarde said Monday.

The European Central Bank this month raised rates for the first time since 2023 in what was seen as a move to reassure markets that it would keep a lid on inflation as the near total closure of the Strait of Hormuz led to an energy price shock.

Last week, Tehran and Washington signed a memorandum of understanding laying the groundwork for negotiations, after nearly 40 days of fighting that was followed by a shaky and often-broken ceasefire.

Lagarde, speaking to European Parliament lawmakers on Monday, pointed to “a significant decline” in energy prices since the memorandum of understanding pausing hostilities between the United States and Iran.

She also said there were no signs that recent high prices were feeding into “second-round” effects like increased wage demands that could further stoke inflation.

“We see no evidence yet of de-anchoring of inflation expectations or second-run effects that would warrant a more forceful policy response at this stage,” she said.

Eurozone inflation rose to 3.2 percent in May from 3.0 percent in April -- coming in above the ECB’s two-percent target.

Lithuanian central banker Gediminas Simkus said last week that he expected the ECB to raise rates at least once more, saying oil prices were still high and that short-term inflation expectations had increased.