By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said the current energy shock could lead the ECB to raise interest rates further if necessary to prevent higher energy costs from feeding durably through the economy and pushing up inflation.

“We are well aware” that higher rates could weigh on financing and economic growth, Lagarde told French newspaper La Croix in an interview conducted on September 16 and 28 and published Wednesday, adding that the ECB therefore examines the strength of economic activity closely before acting.

A central bank could neither reopen the Strait of Hormuz nor create additional oil or gas reserves, Lagarde said, but its task was to prevent the resulting supply shock from producing lasting inflationary effects.

“This may lead us to raise rates, at the risk of weighing on the financing of the economy and consequently on growth,” she said.

Lagarde identified the energy crisis stemming from the conflict in the Middle East as the most immediate threat to the European economy from the ECB’s perspective, saying it was affecting both prices and growth.

“For the ECB, price stability remains the priority,” she said. “So the main threat today is the energy crisis related to the conflict in the Middle East.”

The economic impact of higher raw-material costs was often overlooked, according to Lagarde, while the energy crisis was unfolding against a backdrop of broader geopolitical change.

Reflecting on the ECB’s handling of the previous inflation surge, Lagarde said policymakers had erred in 2021 in expecting the energy shock to prove temporary and therefore not require an immediate monetary-policy response.

“We haven’t always got it completely right,” she said.

The ECB had failed to anticipate both the interaction of successive crises and the strength of the post-pandemic demand rebound, Lagarde said, as well as Russia’s reduction of gas reserves.

Asked whether she still regarded herself as neither a monetary-policy hawk nor a dove, Lagarde said she deliberately rejected such labels and did not take sides in monetary policy.

“I’m guided by facts and prepared to adjust when circumstances require it,” she said.

On her own future, Lagarde ruled out running in France’s 2027 presidential election, saying such a candidacy “would not be a good idea at all” and pointing in part to her age and the demands of the job.

She also said she did not rule out leaving the ECB a few months before her term formally expires in October 2027, but stressed that she had made no specific decision and would remain at the central bank into next year.

“[O]ne thing is certain: I will still be here in 2027,” Lagarde said. If she did depart early, she added, “it will only be a matter of a few months.”