ECB expected to exit negative rates by end of September – Lagarde

FRANKFURT, May 23 (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 The guard.

“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 posted on the ECB’s website.

These statements illustrate the more marked reversal that the ECB should take on its monetary policy when Christine Lagarde, at the end of last year, considered a rate hike unlikely in 2022.

The deposit rate is currently set at -0.5%, which amounts to charging banks who want to deposit cash with the central bank.

This key rate has been in negative territory since 2014 when the central bank was then in the grip of a marked slowdown in inflation.

However, the rise in prices has accelerated in recent months, especially for fuel, due among other things to Russia’s invasion of Ukraine.

The consumer price index reached a record high of 7.4% year on year in April and excluding food and energy, inflation is well above the 2% target set by the ECB.

“If we see inflation stabilizing at 2% over the medium term, a gradual continuation of the normalization of interest rates towards the neutral rate will be appropriate”, adds Christine Lagarde, who even mentions the possibility of a continuation of the rise beyond the neutral rate “if the economy of the euro zone were overheated”.

Christine Lagarde stressed, however, that the pace and magnitude of these rate hikes could not be determined at 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 excess capacity will evolve, and how well inflation expectations are anchored to our target,” the Commission said. President of the ECB. (Report Francesco Canepa, French version Marc Angrand and Laetitia Volga, edited by Kate Entringer)

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