by Francesco Canepa
FRANKFURT, Feb 7 (Reuters) – The European Central Bank (ECB) may end its bond purchases in the markets earlier than expected but is unlikely to raise its main interest rate in July as the some investors believe, Martins Kazaks, one of the members of the Board of Governors, told Reuters.
The statements last Thursday by Christine Lagarde, the President of the ECB, on the persistence of inflation and the possibility of a rate hike this year led the markets to modify their expectations regarding the evolution of the cost of credit in the euro zone.
But the governor of the central bank of Latvia ruled out that this increase would take place as early as July because that would suppose that the ECB had ended its asset purchases before then.
“July would involve an extremely and very improbably rapid pace of tapering,” he told Reuters in an interview. “But overall, at the current stage, giving a specific month would be very premature.”
The ECB has long said it will end its bond purchases “shortly before” it starts to raise its key rates, a major shift that should initially affect its deposit facility rate, currently at – 0.5%.
Asset purchases are currently expected to continue at least until October, although several sources within the ECB have told Reuters that this deadline could be brought forward at the next meeting on March 10.
With inflation in the euro zone now at 5.1%, more than twice the ECB’s target, Martins Kazaks suggested that an accelerated normalization of monetary policy might be justified.
“If we see that inflation remains high and the labor market remains robust and continues to improve, if we see that the economy continues to improve, the direction will be clear: we could act sooner than we do. had planned in the past,” he said.
He also considered that the risk of an armed conflict between Russia and Ukraine was the main risk likely to influence the trajectory of the ECB’s monetary policy.
“If a war breaks out, God forbid, we will reassess the central scenario and act accordingly,” he said.
(French version Marc Angrand)