ECB President: June rate hike was the right decision, supply shocks are still spreading

ECB President Lagarde said in an interview with French newspaper Les Echos that the ECB's decision to raise interest rates last month was correct.

Lagarde said in the interview with Les Echos on Thursday:

"We firmly believe we made the right decision. As early as April, the vast majority of members of the governing council were ready to make a decision, but at the time we did not yet have all the necessary information."

Last month, following the outbreak of the war in Iran, the ECB became the first central bank among the G7 to implement a rate hike. The ECB stated at the time that the shock was gradually spreading to the entire economy and that the central bank could not risk letting inflation spiral out of control, hence the decision to raise rates.

However, since then, a peace agreement between the United States and Iran has driven a sharp decline in international oil prices, removing the main factor that had been pushing inflation higher. The latest data released on Wednesday showed that eurozone inflation slowed more than market expectations. As a result, divisions have emerged within the ECB over whether further rate hikes are needed.

Lagarde said the supply shock is still transmitting to other areas of the economy, although the so-called "second-round effects" have not yet appeared. She said:

"We are facing a supply shock from external sources, which is spreading to other parts of the economy, and we have already seen its indirect effects. At the same time, we are closely monitoring the risk of second-round effects, although so far this situation has not materialized."

When asked whether she would leave the ECB early, Lagarde reiterated her previous statement:

"Once again, we are in turbulent times, and I believe that, as the captain of this ship—the European Central Bank—I should stay at the helm."

When asked whether she would play a role in next year's French presidential election, she said she believed "a European voice should be heard."

Lagarde said: "If this debate moves in a direction that weakens France's commitment to Europe, I think it is necessary to say that this will be a painful path for our country and our compatriots."

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