Lagarde hints ECB rate hike could come as early as July

The European Central Bank is expected to end its stimulus program by buying bonds at the start of the third quarter of this year, followed by a rate hike that could come “a few weeks” later, the president said on Wednesday. from the ECB, Christine Lagarde.

Ms Lagarde cemented market expectations that the ECB will raise its key rate for the first time in more than a decade in July in a bid to rein in record eurozone inflation – the result of soaring oil prices. energy that affects other goods.

Most other major central banks have already raised borrowing costs, but the ECB, which had fought too-low inflation for a decade, continues to inject liquidity into the financial system through bond purchases. “I expect them to be concluded at the beginning of the third quarter,” Ms Lagarde told a conference in the Slovenian capital. “The first rate hike, informed by the ECB’s forward guidance on interest rates, will take place some time after the end of net asset purchases… (and) that could mean a period of just a few weeks .”

She joined a growing number of ECB policymakers calling for a hike in July after inflation hit 7.5% in the euro zone last month and even measures that eliminate food and energy prices. exceeded the ECB’s 2% target. “What started as a one-off shock has now become a more widespread phenomenon,” ECB policy chief Bostjan Vasle said at the same event. “When circumstances change, the political response must follow,” added the Slovenian governor.

ECB board member Frank Elderson also said earlier on Wednesday that the ECB may consider raising rates in July, a move also advocated by Bundesbank President Joachim Nagel, among others. Estonian Governor Madis Mueller said the ECB’s bank deposit rate, which is currently -0.5%, could exceed zero by the end of the year for what would be the first time since 2014. “Even if we go in increments of 25 basis points, we could hit a positive rate by the end of the year,” he told Reuters in an interview.

Similarly, ECB member and head of the Banque de France, Francois Villeroy de Galhau, told France Inter radio that Frankfurt would begin to gradually raise rates this summer.

Inflation hit a record high of 7.5% in the 19-nation currency area last month and as a result several ECB policymakers argued for a rate hike in July.

The war in Ukraine has provided a “negative shock” to the French economy, which also has to deal with “very high” inflation, Villeroy de Galhau said on Wednesday. “Inflation is the main concern of businesses and citizens,” Galhau told France Inter radio.

The Banque de France had said earlier on Wednesday that France would post quarterly growth of 0.2% in the second quarter as parts of the services sector recover from a slump induced by the Omicron Covid variant earlier this year.

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