Lagarde points to July for first rate hike and September to leave negative rates behind

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“I expect the net purchases under the APP (programme) to end very quickly in the third quarter. This will allow us to raise the rate in the July meeting,” says the ECB chairman.

Christine Lagarde with Luis de Guindos.
Christine Lagarde with Luis de Guindos.EFE

The President of the European Central Bank (ECB), Christine Lagarde, has pointed to the entity’s Governing Council meeting scheduled for next July as the right time to raise interest rates in the euro area for the first time in more than a decade. . ,

“I hope that (Program) Net purchases under the APP end very early in the third quarter, This will allow us to raise the rate in line with our future orientation at our July meeting,” the French woman said in an article published on the ECB blog.

Similarly, the institution’s president points out that, based on current perspective, it is possible that the institution may be in a position to “exit negative interest rates by the end of the third quarter”.

In his opinion, the markedly upward shift in inflation outlook makes it suitable to adjust for nominal variables, and this includes interest rates.

“This will not tighten monetary policy, rather, leaving policy rates unchanged in this environment will lead to policy easing, which is not currently warranted,” he argues.

In any case, Lagarde emphasized that the next phase of the ECB’s monetary policy normalization should be guided by the development of a medium-term inflation outlook.

“If we see inflation stabilizing at 2% over the medium term, then a Further progressive normalization of interest rates Towards a neutral rate,” cautioned that the overall speed and scale of the adjustment cannot be predetermined.

Thus, if the euro area economy is a . was getting extremely hot as a result of Shock For Lagarde, it would be prudent to progressively move policy rates above the neutral rate.

However, he cautioned that the situation is compounded by the presence of negative supply shocks, which creates more uncertainty about the speed with which current price pressures will ease, about the development of excess capacity and inflation expectations. Let’s stick to our goal about the limit.

“In such a scenario, there are Arguments for SequentialismOptionality and flexibility when it comes to adjusting monetary policy,” he says.

In this regard, Lagarde reiterated that the ECB can, if necessary, design and deploy new instruments to ensure the transmission of monetary policy as it moves on the path of normalization.

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