Lagarde: Higher energy prices will not automatically trigger interest rate hikes The ECB will make a comprehensive decision based on inflation and growth

The Zhitong Finance App learned that ECB President Christine Lagarde told Eurozone finance ministers that a jump in energy prices will not automatically translate into monetary contraction. “Interest rates will not move in sync with energy prices.” Lagarde said in Dublin on Friday, “Because apparently, energy prices and their impact on prices will also affect other factors, especially growth and consumption. We will take all of these factors into account; the synchronous linkage mechanism is not a mechanism that actually applies.”

Lagarde made this statement after Eurozone finance ministers held an informal meeting in the Irish capital. Ireland will assume the rotating presidency of the European Union in the second half of 2026.

Lagarde's statement comes against the backdrop of the Middle East geopolitical conflict continuing to disrupt the global energy market. Since the outbreak of the war between the US, Israel, and Iran, the Strait of Hormuz, which blocks about 20% of the world's oil and gas transportation, has almost been closed, driving energy prices to soar sharply.

Faced with inflationary pressure, the ECB implemented the first rate hike in nearly three years in June, raising the deposit mechanism interest rate from 2.00% to 2.25%; in September, it raised interest rates again by 25 basis points to 2.5%. The ECB expects an inflation rate of 3% in 2026, 2.5% in 2027, and 2.1% in 2028, all above the target level of 2%.

As the recent rise in oil and gas prices is expected to drive inflation to about 4%, market pricing indicates that interest rates will be raised at least three times in the next year by 25 basis points. Some officials have hinted that they are preparing to further tighten the policy, but have kept quiet about the exact number of interest rate hikes.

The ECB's forecast released last week shows that consumer price increases this year and next year are 3% and 2.5%, respectively, far higher than the 2% target. At the same time, the region's economy has shown greater resilience than expected to the Middle East war and the ensuing energy shocks.

Lagarde said after the September policy meeting that the resilience shown by the economy may continue until the third quarter, and the economic growth in 2026 may exceed the forecast of 0.9%.

“We are responding carefully to the current situation and have prepared a scenario analysis to assess the possible consequences of certain variables.” Lagarde said, “We are in a good position to respond to more data, information, and figures to make a good assessment of changes.”