Monday 15th November 2021
Criteria probably not met
ECB does not hold out the prospect of a rate hike
Inflation is proving to be more protracted than expected: ECB President Lagarde believes an interest rate hike in the coming year is unlikely. Accordingly, the prerequisites for this will probably not be met.
According to the President of the European Central Bank (ECB), Christine Lagarde, the phase of increased inflation in the euro area could last longer than expected. The central bank continues to assume that the supply chain problems will gradually subside in the course of the coming year, Lagarde said in a hearing before a committee of the European Parliament, according to the speech. “But the decline will take longer than originally thought,” she added.
In addition, the ECB President did not hold out the prospect of a key rate hike. It is very unlikely that the conditions for an interest rate hike in the coming year will be met, said Lagarde. One continues to expect a weakening of inflation in the coming year. However, this will proceed more slowly than originally expected.
Lagarde again blamed rising energy prices and supply bottlenecks for the rise in inflation. However, the ECB does not see a great risk that rising wages could lead to a sustained rise in inflation. “Overall, we continue to assume that inflation will remain below our new symmetrical two percent target in the medium term,” said Lagarde.
The inflation rate in October in the euro zone was 4.1 percent, well above the target value. At the same time, economic growth is slowing down somewhat due to supply bottlenecks and the rise in energy prices, said the central bank chief. She also refers to the uncertainty caused by the corona pandemic. Recently, the number of infections has increased significantly in many countries in the euro zone and new restrictions have been adopted.
With this, Lagarde confirmed the latest statements. Recently, there has been repeated speculation in the financial markets that the ECB could raise its interest rates as early as 2022. The ECB has not even decided to end its PEPP corona emergency program, which it uses to buy fixed-income securities such as government bonds. Lagarde has promised that PEPP will end as planned at the end of March 2022. Recently, a number of smaller central banks have already started to raise interest rates.