Lagarde signals end to ECB negative interest rates by September

THE European Central Bank (ECB) will probably draw a line under the era of negative interest rates by September, its president Christine Lagarde said Monday, as the eurozone faced soaring inflation.

The ECB is “likely to be in a position to exit negative interest rates by the end of the third quarter”, she wrote in a blog post.

First, the end of the bank’s bond-buying stimulus programme “very early in the third quarter” would pave the way for a “rate lift-off at our meeting in July”, she said.

The initial hike would be the ECB’s first in over a decade and would lift rates from their current historically low levels.

These include a minus 0.5 deposit rate, which effectively charges banks to park their excess cash at the ECB overnight.

Lagarde has come under increasing pressure from colleagues on the ECB’s governing council to raise rates sooner rather than later as inflation in the eurozone has taken off.

Consumer prices soared at a rate of 7.5 per cent in the euro zone in April, an all-time high for the currency club and well above the bank’s two-per cent target.

The renewed surge has been driven by the rise in energy prices following the Russian invasion of Ukraine, prompting other central banks to reach for interest rate hikes.

The Federal Reserve raised rates by an unusually large 50 basis points at the beginning of May.

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Any hikes beyond zero would be dependent on the “inflation outlook”, Lagarde said.

If the forecasted rate of inflation appeared to be stabilising around the ECB’s two-per cent target, further increases “will be appropriate”.

ECB policymakers will decide their course of action in upcoming June 9 and July 21 meetings.

AFP