ECB SHOULD GET OUT OF NEGATIVE RATES BY END OF SEPTEMBER, SAYS CHRISTINE LAGARDE
FRANKFURT (Reuters) – The European Central Bank (ECB) is expected to raise its deposit rate to zero by the end of September and could raise it further if inflation stabilizes at 2%, its Chair Christine Lagarde said on Monday.
“Based on the current outlook, we should be able to exit negative interest rates by the end of the third quarter,” she wrote in a blog post published on the ECB’s website.
These statements illustrate the clearer about-face the ECB was set to make in its monetary policy when Christine Lagarde, late last year, thought a rate hike in 2022 was unlikely.
The deposit rate is currently -0.5%, which charges banks wishing to deposit cash with the central bank.
This policy rate has been in negative territory since 2014, when the central bank was hit by a significant slowdown in inflation.
However, price increases have accelerated in recent months, particularly for fuel, due in part to Russia’s invasion of Ukraine.
The consumer price index hit a record high of 7.4% yoy in April and excluding food and energy inflation is well above the ECB’s 2% target.
“Should inflation stabilize at 2% in the medium term, a gradual continuation of the normalization of interest rates towards the neutral rate is appropriate,” adds Christine Lagarde, who even mentions the possibility of a continuation of the rise above the neutral rate, “if the Eurozone economy would be overheating”.
However, Christine Lagarde stressed that the pace and magnitude of these rate hikes could not be determined from the outset due to supply uncertainties, including COVID-19 restrictions in China and the impact of the war in Ukraine.
“This creates more uncertainty about how quickly current price pressures will ease, how overcapacity will develop and how well inflation expectations are anchored to our target,” said the ECB President.
(Report by Francesco Canepa, French version by Marc Angrand and Laetitia Volga, edited by Kate Entringer)