Lagarde: Rising energy prices will not automatically trigger a rate hike; the European Central Bank will make comprehensive decisions based on inflation and growth.

According to reports from Zhitong Finance APP, European Central Bank President Christine Lagarde told eurozone finance ministers that a spike in energy prices will not automatically translate into monetary tightening. "Interest rates will not move in sync with energy prices," Lagarde said on Friday in Dublin. "Because obviously, energy prices and their impact on prices also affect other factors, particularly growth and consumption. We will take all these elements into account, and a synchronized linkage mechanism is not a practically applicable mechanism."

Lagarde made these remarks after an informal meeting of eurozone finance ministers held in Ireland's capital. Ireland will assume the rotating presidency of the European Union in the second half of 2026.

Lagarde’s comments come amid ongoing geopolitical tensions in the Middle East that continue to disrupt global energy markets. Since the outbreak of the US-Israel-Iran conflict, the Strait of Hormuz, which controls about 20% of the world’s oil and natural gas transportation, has been nearly shut down, causing energy prices to surge sharply.

In response to inflationary pressures, the European Central Bank implemented its first interest rate hike in nearly three years in June, raising the deposit facility rate from 2.00% to 2.25%. In September, it was raised again by 25 basis points to 2.5%. The ECB forecasts inflation at 3% in 2026, 2.5% in 2027, and 2.1% in 2028, all above the 2% target level.

With the recent rise in oil and natural gas prices expected to push inflation up to around 4%, market pricing indicates that there will be at least three more 25 basis point rate hikes in the coming year. Some officials have hinted at being prepared to tighten policy further but remain tight-lipped about the exact number of hikes.

ECB forecasts released last week show that consumer price increases this year and next will be 3% and 2.5%, respectively, well above the 2% target. Meanwhile, the region’s economy has shown greater resilience to the Middle East conflict and the resulting energy shock than expected.

After the September policy meeting, Lagarde said that the resilience demonstrated by the economy could persist into the third quarter, and economic growth in 2026 might exceed the 0.9% forecast.

"We are responding cautiously to the current situation and have prepared scenario analyses to assess the consequences that certain variables may bring," said Lagarde. "We are in a favorable position to respond to changes based on more data, information, and numbers so as to make a sound assessment of developments."