Christine Lagarde, the European Central Bank president, has played down the chances of a “measurable tightening” of monetary policy to tackle this year’s record eurozone inflation, saying any shift would be gradual.

With financial markets pricing in an interest rate rise in June, Lagarde told the European Parliament on Monday that the ECB saw “no need to rush to any premature conclusion at this point in time — the outlook is way too uncertain”.

Her comments were more cautious than last week when she sparked a sell-off in eurozone bond markets by refusing to rule out a potential rate rise this year and saying there was “unanimous concern” about inflation on the ECB governing council.

However on Monday Lagarde also said she no longer expected inflation to fall below its 2 per cent target by the end of this year.

Eurozone inflation defied expectations for a decline at the start of this year by rising to a record of 5.1 per cent in January. Lagarde said it would “continue to be high in the near term” before declining over the course of the year.

Lagarde said there was “a real chance inflation will stabilise” at the 2 per cent target, which she said would lead to a “normalisation of our monetary policy”.

The ECB’s governing council next meets in March. If it was confident then that inflation would remain at the target over the next two years, Lagarde said, it would “take the necessary decision”. That would include “gradually reducing” its asset purchases, which it has used to deliver added stimulus to the eurozone economy, and then “hiking interest rates”.

Carsten Brzeski, head of macro research at ING, said Lagarde had “tried to put the hawkish genie back into the bottle after an aggressive repricing in markets following Thursday’s ECB meeting”.

Eurozone government bond prices continued to fall on Monday, pushing up the borrowing costs of some southern European countries, such as Greece, back to pre-pandemic levels. Bond prices fall as yields rise.

The spread between Italian 10-year borrowing costs and those of Germany — a key measure of stress in eurozone bond markets — rose to 1.63 percentage points, its highest level since July 2020.

Frederik Ducrozet, a strategist at Pictet Wealth Management, said: “The lack of change in tone in the face of a significant re-pricing in rates markets is in itself an important signal.”

He predicted the ECB was likely to raise rates for the first time in September or December, after having ended its net asset purchases in the third quarter. The bank last raised rates in 2011.

Lagarde was asked repeatedly by MEPs whether the ECB would intervene to curb the rise in borrowing costs for peripheral eurozone countries.

She said: “We will use any tools, any instruments that are needed in order to make sure that our monetary policy is properly transmitted throughout the whole euro area, to all member states.”

The ECB president also emphasized that the eurozone economy had no “labour market overheat” — unlike the US or UK. She said it was in a “completely different” situation in terms of the size of its fiscal stimulus, the strength of demand and the level of core inflation, which excludes energy and food prices.

Eugen Jurzyca, a Slovakian MEP, said: “People are genuinely worried about what will happen in the upcoming months as inflation has been much higher than predicted and governments face tough questions of whether they should respond with compensation measures.”