ECB lifts key rate to 2.25% citing inflation concerns

The European Central Bank raised its key interest rate for the first time in a year earlier this month, a move President Christine Lagarde defended as necessary to combat persistent inflation and not merely a precautionary step. Speaking at the ECB's annual monetary policy forum in Sintra, Portugal, on Monday, Lagarde said the quarter-point increase to 2.25% was a measured response to a genuine inflation problem.

Lagarde rejected the characterization of the June 11 rate hike as an "insurance hike," stating that policymakers acted because data pointed to rising headline and core inflation. She said that without the increase, inflation could have remained above the bank's 2% target into 2028. Official projections show eurozone inflation, which was 3.2% in May, returning to target only in late 2027.

The ECB president framed the decision as a sign of a broader shift in monetary policy, declaring an end to an era dominated by unconventional tools like large-scale bond purchases and forward guidance. She said the central bank is now returning to relying primarily on interest rates, a "back to basics" approach made possible by a more resilient eurozone economy. Lagarde cited...