By raising its key interest rates in response to largely imported inflation, the European Central Bank gives the impression of mechanically applying the letter of its mandate, at the risk of losing sight of the very spirit of price stability. For African countries in the Franc Zone, whose monetary conditions remain largely influenced by decisions taken in Frankfurt, this directly affects their prospects for growth and financing. On 11 June 2026, the ECB (European Central Bank) raised its deposit rate by 0.25 percentage points, from 2% to 2.25%, marking the first increase in nearly three years. The official message is crystal clear: inflation, fuelled by the latest surge in energy prices following the conflict in the Middle East, is once again drifting away from the 2% target and threatens to remain high until 2027, which would justify an ‘adjustment’ to monetary policy.
On paper, the decision ticks all the boxes. The institutional framework of Economic and Monetary Union entrusts the ECB with a primary mandate of price stability, defined as 2% inflation in the medium term and presented as symmetrical: too much inflation is deemed just as harmful as too little. Internal projections published on the same day show inflation remaining above 2% for several more years, despite the tightening cycle already implemented between 2022 and 2024, fuelling fears that inflation expectations may become unanchored.
From Frankfurt’s perspective, the rule is simple: inflation above target for longer than expected means further tightening – even if moderate – to underscore the central bank’s resolve. The mandate is being adhered to; the reaction function is clear. But it is precisely this mechanism that raises questions when one considers the nature of the shock and the actual state of the economy. Imported inflation in a struggling economy The new surge in inflation that is worrying the ECB is not the result of an overheating Europe, unbridled domestic demand or out-of-control wages. It stems primarily from an imported supply shock: the surge in energy prices triggered by the conflict in Iran and tensions on maritime routes, which is causing a sharp rise in costs for businesses and households. As in previous episodes, a large proportion of the inflation is imported, linked to the terms of trade rather than to credit or domestic demand. Prices at the pump have not risen because Europeans have started consuming more petroleum products.
At the same time, growth in the eurozone is already sluggish. The ECB itself forecasts GDP growth of only around 1% in 2026: we are a long way from any kind of overheating.
The effects of past monetary tightening are now being fully felt: tighter financing conditions, investment marking time, a sharp slowdown in the property market, and corporate lending contracting.
Dealing with an imported supply shock in an economy already weakened by a further round of monetary tightening is like prescribing an even stricter diet to a weakened patient, without tackling the root cause of their fever. Rising interest rates affect domestic demand, but they do not reopen the straits or the pipelines.
The ECB would nevertheless argue that the debate is not solely about the origin of inflation, but also about how this inflation might alter future behaviour.
Imported inflation is never entirely separate from domestic price dynamics. If households and businesses become accustomed to inflation consistently exceeding 2%, they gradually adjust their behaviour: employees demand larger pay rises, businesses pass on more of their costs, and negotiations factor in higher inflation. The risk, therefore, lies not only in current inflation but also in the unmooring of expectations, which could transform a temporary energy shock into a more enduring phenomenon. A pro-cyclical tightening that fuels psychological anxiety This argument deserves consideration. A credible central bank cannot ignore the risk that persistent inflation might alter pricing and wage-setting behaviour. That said, it assumes that the main danger today is that of a self-perpetuating inflationary spiral.
Yet indicators of economic activity, credit and investment point more to a slowing economy than to one at risk of overheating. Growth in corporate lending has fallen back to around 2%, down from over 7% at the height of the post-COVID stimulus years: a clear sign of an economy slowing down, not one that is overheating.
The real question lies elsewhere: faced with an economy that is already fragile, is the most serious risk still that of inflation, or that of a sustained slowdown which monetary policy could itself exacerbate?
The difficulty of monetary policy lies precisely in prioritising these risks. In the current context, characterised by a largely exogenous energy shock and lacklustre economic activity, the danger of excessive tightening appears at least as serious as that of premature easing.
The decision is, first and foremost, pro-cyclical. Whilst the eurozone is slowing down, the rise in interest rates acts as a further monetary brake: credit becomes more expensive, investment projects are postponed, households delay certain purchases, and businesses step up their cost-cutting measures. Where a stabilising economic policy should be smoothing out the cycle, the downturn is being exacerbated.
Procyclicality is not only real, but it is also psychological. Central banks’ decisions carry strong symbolic weight: they tell economic actors what they should fear most. By choosing to tighten policy, the ECB is signalling that the primary threat remains inflation, rather than stagnation or unemployment, and this signal weighs on market expectations.
Households are increasing their precautionary savings, businesses are adopting a defensive stance, and the markets are pricing in a prolonged period of high interest rates, which further increases the cost of capital.
In other words, the central bank may succeed in stabilising prices, but there is no certainty that it will significantly reduce inflation, the root causes of which lie outside the eurozone. It is thus running the risk of plunging the eurozone into what its own doctrine describes as another long-term threat: persistently lacklustre growth, coupled with excessively low inflation – a scenario just as detrimental to price stability as inflation slightly above 2%. The letter of the rule versus the spirit of stability This is where the crux of the debate lies: the ECB is applying the letter of the rule – responding to the inflation gap by tightening policy – but seems to be overlooking the broader spirit of price stability, which requires taking into account the nature of the shock, the state of the cycle and the lagged effects of policy already implemented.
Yet its own strategy review acknowledges that prolonged periods of excessively low inflation, or even deflation, are just as dangerous as episodes of inflation moderately above the target. Yet, by continuing to tighten whilst the bulk of the pass-through from past price rises is yet to materialise over the coming quarters, the institution is increasing the risk of ‘over-correction’: imported inflation will eventually subside as the energy shock eases, but the real economy will remain mired in anaemic growth.
The mandate did not require this headlong rush. A more nuanced interpretation could have distinguished more clearly between an imported supply shock and domestic demand overheating, accepted a little more short-term inflation volatility to preserve the medium-term trajectory, and explicitly incorporated the symmetric risk of downward disanchoring into the reaction function. A monetary Europe without genuine fiscal co-management The ECB is acting in this way partly because it is isolated. The architecture of the Economic and Monetary Union is based on a single, independent monetary policy and on national fiscal policies governed by strict deficit and debt rules. This framework was designed to avoid ‘fiscal dominance’, that is, a situation where lax Member States force the central bank to monetise their fiscal excesses.
This concern for discipline has become a bias. In European discourse, greater emphasis is placed on the need for credible fiscal frameworks than on the counter-cyclical use of budgets to stabilise the cycle. The Commission recommends a rather restrictive aggregate fiscal stance for 2024–2025 to support the fight against inflation, whereas the situation would, on the contrary, call for targeted protective measures in the face of the energy shock and massive investment in the energy transition.
In the face of an imported supply shock, however, fiscal instruments – targeted transfers, temporary subsidies, social safety nets, support for the most exposed sectors, and accelerated energy investment – are better suited than relying solely on key interest rates. The post Is the ECB’s rate rise justified? appeared first on New African Magazine .