Lagarde backs ECB rate hike expectations

LJUBLJANA, May 11 (Reuters) – Christine Lagarde, President of the European Central Bank (ECB), announced on Wednesday that the institution could end its asset purchase program (APP) at the start of the third quarter and raise rates “a few weeks” later.

Christine Lagarde thus reinforces market expectations of a rise in interest rates in July for the first time in more than ten years in order to control the record rise in consumer prices.

Most of the other major central banks have already raised their rates, but the more wait-and-see ECB continues to inject liquidity into the financial system through bond purchases on the markets.

“My expectation is that they [les achats d’obligations, ndlr] should be completed at the beginning of the third quarter,” Christine Lagarde told a conference in Slovenia.

“The first rate hike (..) will take place some time after the end of the net asset purchases (..), which may mean a period of only a few weeks,” she added.

A growing number of ECB Governing Council members are calling for a July rate hike in the face of inflation, which hit 7.5% year on year last month, far short of the 2% target set by the central bank.

“What started as a one-off shock has now become a broader phenomenon,” said Bostjan Vasle, Governor of the Bank of Slovenia. “When circumstances change, the political response must follow,” he added.

His counterpart at the Bundesbank, Joachim Nagel, and Frank Elderson, a member of the board of the executive board of the ECB, also advocated on Wednesday a rate hike in July.

Estonian Governor Madis Müller said the ECB’s deposit rate, currently at -0.5%, could turn positive again by the end of the year, something that hasn’t happened since 2014.

“Even if we do 25 basis point rate hikes, we could get to a positive rate by the end of the year,” he said in an interview with Reuters. (Report Balazs Koranyi; written by Francesco Canepa; French version Laetitia Volga, edited by Kate Entringer)

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