Lagarde has since floated an early ECB exit to play a role in the French presidential campaign. She continues to refuse to rule out leaving before the end of her term, although has said she will stay at least until the end of the year.
At today’s meeting, the ECB raised its key deposit rate for the second time this year, as energy prices driven by the Middle East war threaten to keep inflation above target through 2028.
The hike was widely expected after inflation topped the 2% price-stability target for six straight months, reaching 3.3% in August as energy inflation surged to 14.3%. Oil topping $100 a barrel after fresh escalation in the Middle East suggests little relief is in sight.
ECB staff lifted the inflation forecast for 2027 to 2.5%, from 2.3%, and for 2028 to 2.1% from 2% — enough to put it just above the ECB’s 2% target. “The outlook remains highly uncertain, with risks to the upside for inflation,” the ECB said in a statement.
Lagarde kept the door open to further rate hikes but offered no guidance on the path ahead, as policymakers weigh persistent inflation against the economic fallout from the war and rising government borrowing costs.
The eurozone economy has so far held up surprisingly well. The ECB raised its growth forecasts for 2026 and 2027 to 0.9% and 1.4%, respectively, “mainly reflecting the greater than expected resilience of the euro area economy.”