Lagarde hints at interest rate turnaround soon


EZB boss Christine Lagarde is preparing the financial markets for the scenario of an interest rate turnaround in July. Bond purchases are likely to be phased out early in the third quarter, followed by a rate hike that could possibly come “a few weeks later,” the Frenchwoman told a conference in Slovenia on Wednesday. Most recently, a number of ECB representatives had announced an initial interest rate hike for July. On Wednesday, ECB President Frank Elderson raised the possibility that interest rates could rise in July.

Lagarde’s statements are compatible with the July appointment. “We haven’t yet defined exactly what ‘some time after’ means,” Lagarde said. “But I said very clearly that it could be a period of just a few weeks.” The Governing Council of the ECB will next discuss future monetary policy on June 9, with the subsequent meeting taking place on July 21. After that, the Governing Council of the ECB will not meet again for a regular monetary policy meeting until September. The Frenchwoman pointed to inflation, which is likely to remain high for some time.

The pressure on the ECB to raise key interest rates has recently increased due to the high inflation rate in the euro area. It reached a record high of 7.5 percent in April. In Germany, inflation was 7.4 percent in April, the Federal Statistical Office confirmed on Wednesday. In other countries such as the USA or Great Britain, the central banks have already increased interest rates this year.

The first banks are abolishing negative interest rates

In view of the record inflation in the euro area, the head of the Bundesbank, Joachim Nagel, is also urging action. It is important to act quickly to avoid second-round effects such as prices and wages escalating and inflation expectations getting out of control. At the FAZ Congress last week, Nagel said that the ECB should not remain inactive – and that it must soon follow the US Federal Reserve on the path to normalizing monetary policy: “We have to do something,” was his plea.

The deposit rate in the euro area is currently minus 0.5 percent. This means that banks have to pay penalty interest if they park excess funds with the central bank. The key interest rate is currently 0.0 percent. Some banks are taking the fact that there are increasing signs of a turnaround in interest rates as an opportunity to say goodbye to negative interest rates for their customers. On Tuesday, the bank ING Germany announced that it would increase the allowances for credit balances on current and call money accounts, for which no custody fee is due, from the current 50,000 to 500,000 euros per account on July 1st. In addition, it should also be possible for new customers to open a new so-called extra account, which is a form of overnight money account, so that even higher amounts can be parked at the bank without a custody fee. The ING is thus passing on the positive interest rate development on the capital markets to its customers at an early stage, the bank said.

At many banks – it is estimated at around a third in the industry – the negative interest rates, custody fees and deposit fees are directly linked to the ECB deposit rate. So they would automatically disappear anyway with the end of the ECB’s negative interest rates. For marketing reasons, it could therefore be interesting for banks to announce an end to custody fees in advance, says the Stuttgart banking professor Hans-Peter Burghof. However, it also seems that given the capital market interest rates in Germany, which were already increasing before the ECB key interest rates were set, it is again becoming more attractive for the banks to refinance themselves through customer deposits, which bear little interest, rather than through the capital market.



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