Inflation scares the ECB, possible rate hike in July

The Bce it must act and demonstrate its commitment to preserving price stability and a first rate hike it could also come “after only a few weeks” from the end of net purchases of securities, which should take place at the beginning of the third quarter. The president reiterated this with some emphasis Christine Lagarde, speaking at the 30th anniversary ceremony of the Central Bank of Slovenia. «After the first rate hike, the normalization process will be gradual. I deliberately use the term normalization – he has emphasized her – and not exacerbation ».

Lagarde reiterated the timing sequence with which, for months, the ECB has said it intends to proceed towards this normalization. “First, we will put an end to net purchases of securities. Based on the data to come, my expectation is that they should end at the beginning of the third quarter. The first rate hike, based on the ECB’s forward guidance, will take place some time after the end of net purchases. So far – she stressed – we have not, deliberately, defined the notion of ‘some time’ in a precise manner. But I was very clear that this could mean a period of only a few weeks. ‘

Possible rise as early as July

So, concretely, a possible rate hike is looming in the summer, perhaps as early as July. Why the stop buying purchases of securities with the App program should be decided at the meeting of the Governing Council on 9 June. And by triggering it immediately, at the beginning of the third quarter, which starts with July, there could be those “few weeks” Lagarde talks about and then proceed to an increase in the cost of money, given that the next monetary council will be held on the 21st. July. Otherwise it should be 8 September.

“With inflation likely to remain high for some time, actions demonstrating our commitment to stability, anchoring inflation expectations and containing second-tier effects will be crucial.” Lagarde found that both core inflation (the index without the more volatile items) and inflation expectations in the euro area are at or above the ECB target of 2%.

Commitment to “flexibility”

All this while «it seems increasingly unlikely that the disinflationary dynamics of the last decade will return. As a result – said the president – it is appropriate that our policy returns to more normal parameters ».

But this taking into account that in the euro area (unlike in the US) “we do not have excesses of aggregate demand, consumption and investments remain below pre-crisis levels and the war is creating a challenge for monetary policy, moderating interest rates. growth – he noted – and pushing up inflation ».

For this reason the commitment to the flexibility of the «will be crucial». And “in addition – he added – the ECB has consistently placed emphasis on the optionality of its monetary policy, which creates space for us to respond to inflation surprises in a timely and efficient manner”.

Looking more generally at the situation of the EU, the road taken so far “has not been easy and the challenges we have to face remain many”. Starting with the Russian-Ukrainian war. “But I am confident that we will overcome them.” Lagarde went back to quoting the words of Jean Monnet, according to which Europe would be forged during the crises. “I am convinced that whatever comes our way, we will be able to find the answer.”

Source: RSS Economia by

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