Lagarde Says Inflation, Growth Risks Now More Broadly Balanced

European Central Bank President Christine Lagarde has signaled that risks to euro-area inflation and growth are now more broadly balanced, marking a notable shift from just weeks ago. Speaking at the ECB’s annual retreat in Sintra, she acknowledged that upside inflation risks and downside growth risks have become less pronounced, largely due to rapidly evolving economic conditions. This assessment comes only three weeks after the ECB became the first G-7 central bank to raise interest rates following the outbreak of the Iran war, a move justified by the need to prevent inflation from spiraling out of control. The landscape has changed dramatically since that rate hike, with the US-Iran peace accord sending oil prices sharply lower and removing a key inflation driver. The latest euro-area data showed price growth easing more than anticipated, reinforcing the shift in risk balance. Lagarde reiterated the ECB’s commitment to price stability, stating, “We’re not going to let the genie get out of the bottle and inflation move up,” while emphasizing that the bank will take necessary steps as conditions evolve. This more balanced risk outlook suggests the ECB may face less urgency to hike rates aggressively in the near term. Other ECB officials, including Nagel and Kazaks, have indicated they are keeping options open for upcoming meetings, with the next decisions likely to be either a hike or a hold. The implication is that the central bank is entering a more data-dependent phase, where the pace and magnitude of further tightening will hinge on how inflation and growth dynamics unfold against a backdrop of geopolitical shifts and falling energy prices. What to watch next: Whether the ECB delivers another rate hike in July or pivots to a pause, as the balance between containing inflation and supporting growth becomes the central policy dilemma.