That downbeat price outlook, coupled with the relentless surge in energy costs, bolstered market bets for rate hikes and investors now expect more than three moves over the next 12 months, up from between two and three before the meeting.
Lagarde, however, insisted that further hikes were not obvious and said she could not anticipate what the next move would be, given the uncertainty.
"We have not debated at all any kind of future path," Lagarde said. "Markets do what they have to do and we do what we have to do — which is to provide price stability."
Economists polled by Reuters had expected Thursday's hike to be the ECB's last for now, although views had begun to shift even ahead of the meeting and others changed on Thursday.
"In light of this hawkish tone, we are revising our forecast for December and now expect another 25-basis-point rate hike," Commerzbank economist Jörg Krämer said.
Offering some good news, Lagarde raised growth forecasts for this year and next, arguing that the economy of the 21-country euro zone was proving more resilient than feared.
But this too will put some upward pressure on inflation and bolster the case for more rate increases, which would take them above the so-called neutral level, which neither restricts nor stimulates growth.
"The ECB may need to move into restrictive territory and cannot rule out further rate hikes at this stage," Sylvain Broyer at S&P Global Ratings said. "The inflation outlook has worsened over the summer. Supply shocks are not only multiplying, but it is increasingly likely that demand is also adding to inflation."
But the ECB may not be under pressure to quickly follow Thursday's move with another rise in borrowing costs.
The labour market remains relatively soft, underlying inflation actually fell last month and wage indicators remain benign, pointing to no real danger of a hard-to-break wage-price spiral.
This is why some think the ECB will stick to quarterly moves, with the next hike coming in December, when fresh projections will also be released.
"We maintain our baseline of two further 25 basis point rate hikes at quarterly intervals, with the next one in December and the second in March 2027," Nordea economists Jan von Gerich and Tuuli Koivu said.
TLT•
