Lagarde's insistence that the June hike remains appropriate even under a more favourable Middle East scenario signals the ECB is prioritising underlying inflation persistence over a peace dividend from the Iran ceasefire, limiting scope for near-term dovish repricing. The modest 0.1 percentage point downgrade to growth, against a labour market still near record-low unemployment, points to a central bank comfortable holding a firm stance without fearing a hard landing. Her remarks on renminbi undervaluation add a fresh currency dimension for FX markets to weigh alongside the rate path, while the digital euro's advance through the European Parliament keeps a longer-term structural theme for European payments and banking in view.---Lagarde says ECB rate rise was correct despite Iran-US ceasefire deal, warns on inflation and currency tensions ahead.Summary:The ECB raised its key interest rates on 11 June, a decision Lagarde said remains correct even after Iran and the US agreed a 60-day ceasefire ten days laterInflation excluding energy and food has accelerated from 2.2% to 2.5%, driven partly by services prices rising 3.5% against a 3% projectionInflation projections stand at 3% for 2026, 2.3% for 2027 and 2% for 2028The ECB trimmed its 2026 growth forecast only slightly, to 0.8% from 0.9% in March, citing a robust financial sector and a labour market near historic low unemploymentLagarde said she does not know whether further tightening is coming, with each meeting decided on the latest inflation and economic dataShe said the renminbi is estimated by the IMF to be undervalued by around 16%, raising the risk of deeper currency tensions between China, the US and the EUEuro area public debt stands at around 88% of GDP, with significant divergence between countries such as Greece, Italy, Belgium and France and lower-debt states including Luxembourg, Estonia and IrelandThe European Parliament's Economic and Monetary Affairs Committee has approved the digital euro, which Lagarde said would lower merchant fees and let individuals pay without reliance on foreign-owned card networksEuropean Central Bank President Christine Lagarde defended the Governing Council's 11 June decision to raise key interest rates, telling interviewers (link to full text) she remains confident it was the right call even though Iran and the United States agreed a 60-day ceasefire just ten days later. Lagarde said the ECB is responding to an external supply shock that is spreading into the broader economy, with data received since the decision confirming the central bank's original analysis, according to the interview. She added that the ECB is watching closely for second-round inflation effects that have not yet materialised.Underlying price pressure has been building, with inflation excluding energy and food rising from 2.2% to 2.5%, driven in part by services inflation of 3.5% against an earlier projection of 3%. The ECB now projects headline inflation of 3% for 2026, 2.3% for 2027 and 2% for 2028, a trajectory Lagarde said made the rate decision clear even under a more favourable scenario in which the war ends, the Strait of Hormuz reopens quickly and oil prices fall. She said this favourable case was one of three scenarios the ECB modelled alongside adverse and severe outcomes first presented in March.On growth, Lagarde said the ECB trimmed its 2026 forecast only modestly, to 0.8% from 0.9% in March, noting unemployment remains close to historic lows, labour force participation continues to rise, and the banking sector remains well capitalised with no signs of significant instability. She declined to signal whether further tightening lies ahead, saying each policy decision will continue to be based on incoming data rather than a preset path.Lagarde also flagged currency tensions, citing International Monetary Fund estimates that the renminbi is undervalued by around 16% and warning that mounting current account imbalances between China, the US and the EU carry risks even short of an outright currency war. On European public debt, she said the euro area average of around 88% of GDP does not currently concern her, provided national commitments are honoured, though she pointed to sharp divergence between higher-debt states such as Greece, Italy, Belgium and France and lower-debt members including Luxembourg, Estonia and Ireland. She separately welcomed the European Parliament committee's approval of the digital euro, saying it would reduce merchant payment fees and give individuals a payment option insulated from foreign sanctions. This article was written by Eamonn Sheridan at investinglive.com.