Key facts
- ECB President Christine Lagarde denied rumors of an early departure from her role.
- The ECB raised its key deposit rate to 2.5%.
- Inflation reached 3.3% in August, with energy inflation at 14.3%.
- ECB staff raised the inflation forecast for 2027 to 2.5% and for 2028 to 2.1%.
- The ECB raised its growth forecasts for 2026 and 2027 to 0.9% and 1.4% respectively.
European Central Bank President Christine Lagarde dismissed speculation about her early departure from the central bank, stating "there is nothing to report" personally. The comments came as the ECB announced a decision to raise its key deposit rate to 2.5%.
Speculation about Lagarde stepping down before her term ends in October 2027 has been circulating since June 2025, with reports linking her to the World Economic Forum. She has reportedly floated an early exit to participate in the French presidential campaign but continues to refuse to rule out leaving before her term expires, though she indicated she would stay at least until the end of the year.
The ECB's rate hike, the second this year, was driven by concerns that energy prices, exacerbated by the Middle East war, could keep inflation above the 2% target through 2028. Inflation had already reached 3.3% in August, with energy inflation surging to 14.3%, and oil prices exceeding $100 a barrel.
ECB staff revised inflation forecasts upward for 2027 to 2.5% and for 2028 to 2.1%. Lagarde indicated a possibility of further rate hikes but provided no specific guidance on future policy moves, as policymakers balance persistent inflation against economic impacts from the war and rising government borrowing costs.
The eurozone economy has shown resilience, with the ECB raising growth forecasts for 2026 and 2027 to 0.9% and 1.4% respectively. However, further rate increases could push borrowing costs into restrictive territory and potentially harm economic growth. Bond markets have already tightened financial conditions, with long-term yields reaching levels not seen since before the global financial crisis.
Economist Friedrich Heinemann suggested that potential early departures of Lagarde and executive board member Isabel Schnabel could argue for a tougher monetary policy stance, as neither would want to be remembered for allowing a resurgence of inflation.