According to Lagarde, the era of negative interest rates could end “by the end of the third quarter”.

The institute is forced to react to high inflation.

European Central Bank (ECB) President Christine Lagarde signaled on Monday that an exit from the negative interest rate era could happen in the third quarter, with runaway inflation forcing the institution to act.

Based on the current outlook, we will probably be able to exit negative interest rates by the end of the third quarter‘ the central banker wrote in a blog post published on the institute’s website. The first rate hike should be decided in July, she added.

The euro, which has been suffering for several months from accelerating monetary policy tightening in the United States, highlighted gains against the greenback (+0.57% to $1.0624 at 08:45 GMT) on Monday morning following the ECB’s release. The Frankfurt institution has been notable for its reluctance to openly announce a timeline for tightening credit conditions for several months.

Statements consistent with the expectations of market participants

However, Christine Lagarde’s words are now in line with the expectations of market participants, who are betting on several rate hikes in the second half of the year. The first increase should be decided in July, Christine Lagarde said, shortly after the end of net asset purchases, the other support tool that is no longer relevant given high inflation. Buoyed by energy prices and shortages of certain products amid high post-Covid-19 demand, eurozone inflation stabilized last month at 7.4% yoy, a level that remains well above the ECB’s 2% target .

During a period of low inflation in 2014, the institution had turned its interest rate negative, charging some of banks’ deposits at its counter to encourage banks to lend to the economy. The exit from the negative interest era therefore affects this instrument, which is currently at -0.5% and is the reference on the market.

In recent weeks, the “hawks” on the ECB Governing Council have been calling for the pace of monetary policy normalization to be accelerated, giving priority to the “doves” who want to stimulate the economy.


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