The European Central Bank kept interest rates unchanged at its latest policy meeting, but President Christine Lagarde signaled growing concern over inflation risks and warned that further rate increases may be possible later this year.

Speaking at a press conference in Frankfurt, Lagarde said inflation risks in the euro area are tilted to the upside, driven largely by volatile energy prices. She noted that any prolonged increase in energy costs could push inflation higher for longer, especially if it spreads to wages and broader pricing across the economy, News.Az reports, citing Reuters.

She also said that global risks remain elevated, pointing in particular to geopolitical tensions in the Middle East, which could disrupt energy supplies and supply chains, further increasing price pressures across the region.

While inflation expectations over the long term remain near the ECB’s 2% target, Lagarde said short-term expectations have risen significantly. She warned that sustained high energy prices could have broader second-round effects on inflation dynamics.

On growth, she said the eurozone economy still relies heavily on domestic demand and a relatively resilient labour market, but acknowledged that risks to economic growth are “to the downside,” citing global uncertainty and energy market volatility.

Lagarde added that the euro area economy had shown signs of momentum before the latest wave of global instability, but stressed that the outlook remains highly uncertain and dependent on how geopolitical developments evolve.

The ECB’s decision to hold rates steady comes as markets increasingly expect potential policy tightening in the coming months if inflation pressures persist.

News.Az 

By Aysel Mammadzada