European Central Bank (ECB) President Christine Lagarde affirmed on Wednesday the institution’s plan to lift interest rates again by another half a percentage point. She noted that the path ahead would be assessed after this increase to bring inflation back toward the 2% target over the medium term and in time for the next projection cycle in March. This stance signals a continued commitment to a policy stance that weighs the risks to price stability against the need to support the economy at a time of mixed growth signals.
Lagarde described the economic outlook as becoming more balanced. The ECB intends to keep policy conditions restrictive to guard against an inflation rebound, a posture designed to anchor expectations and prevent premature loosening of financial conditions. The goal is to avoid a renewed upside surprise in inflation while ensuring that financing conditions remain conducive to sustainable activity.
Even with the anticipated rate increase, Lagarde stressed that future decisions will be data-driven and will follow a meeting-by-meeting approach. Each policy decision will reflect the incoming inflation readings, growth momentum, and financial conditions across member states. The caution reflects a strategy of gradual adjustment, allowing for flexibility as new information arrives.
According to the ECB chief, the latest inflation readings show a rate of about 8.8% in the euro area, though she cautioned that revisions are likely as data from Germany and other large economies are incorporated into the upcoming assessments. She also acknowledged that energy prices have declined from their peaks, but they continue to filter through to consumer prices, leaving core inflation elevated. Recent estimates place core inflation in the vicinity of 5.5%, a level that underscores continued pressure on price growth even as energy marginally eases.
Lagarde emphasized that progress must be made over the next 12 months, especially ahead of the next European elections. She highlighted three large-scale arenas where advances are critical: the financial integration of the euro area, the reform of fiscal rules, and the acceleration of digital Europe. Each of these pillars is seen as essential to strengthening the monetary union’s economic fabric and enhancing the ECB’s ability to supervise banks efficiently and consistently.
She pointed to the broader objective of ensuring that capital flows align with the Union’s ambitious green and digital transition goals, while also keeping the Banks Union path clear and credible. The emphasis was on creating conditions under which capital can circulate more freely to support investment projects that foster resilience and competitiveness across the eurozone.
In that context, Lagarde called on European legislators to reach a timely agreement on revising the fiscal rules. The aim is to craft rules that are simpler, more predictable, and capable of delivering greater participation from member states. Such a reform would strengthen the economic and monetary union by providing clearer incentives and a more stable framework for budgetary discipline, while leaving room for pragmatic responses to shifting macroeconomic realities.