Lagarde defends ECB interest rate hike as ‘robust across three scenarios’

European Central Bank (ECB) President Christine Lagarde has defended the decision to raise interest rates by 0.25 percentage points, insisting the move remains justified under a range of economic scenarios despite growing concerns about its impact on growth.

The rate increase, the ECB’s first since 2023, comes as inflationary pressures have resurfaced following the conflict in the Middle East. Disruptions to energy supplies, particularly linked to intermittent closures of the Strait of Hormuz, have pushed oil and gas prices higher, contributing to a rise in eurozone inflation to 3.2% in May, the highest level recorded since September 2023.

Lagarde said the decision was “robust across three different scenarios” and stressed that future policy decisions would remain data-dependent rather than following a predetermined path.

The ECB outlined three possible economic trajectories. In the most favourable scenario, energy prices ease more quickly than expected, allowing inflation to fall below the ECB’s 2% target by 2027 while supporting a stronger economic recovery.

The move marks a reversal from the monetary easing that characterised much of 2025. Critics argue that higher borrowing costs could weigh on productivity and investment, delaying a return to stable inflation. Concerns have also intensified as the EU economy contracted by 0.2% in the first quarter of 2026, raising fears of a prolonged period of weak growth combined with rising prices.