The ECB president admits to the hard core of the organisation, which has been pushing for weeks to accelerate the process of normalization of monetary policy
The President of the European Central Bank (ECB), Christine Lagarde, surrenders to the speech of the hard wing of the monetary organization. Until now, Lagarde had chosen to be cautious with the market regarding the future of monetary policy, in light of the noise that some members of the institution, including Vice President Luis de Guindos, began making public weeks ago. to generate a first rate hike in July.
These demonstrations even led Lagarde to call out the so-called “hawks” (those who bet on more restrictive monetary policy), fearing that the expectation of an abrupt move in the institution would eventually still frighten financial markets. Until now.
With inflation at a record 7.5% in the eurozone, the ECB president publicly pointed out for the first time on Wednesday that the first rate hike could happen “sometime after” the end of debt purchases. Although Largarde avoided giving a specific date, he did explain that this expression could mean a period of “just a few weeks”. Namely. The July 21 meeting would be the date chosen to implement the move, bearing in mind that the agency will announce the end of its purchase programs in June.
During the press conference on the occasion of the 30th anniversary celebrations of the Central Bank of Slovenia, Lagarde expressed concern that inflation expectations, the control of which is the main mandate of the body, cannot exceed the medium and long-term objective of the institution. , so “we should finalize net bond purchases early in the third quarter and raise interest rates some time later.”
“Although energy prices have given a reprieve, core inflation also rose from 2.9% to 3.5% in April, and food prices also continued to rise sharply (+6.4%),” recalls Ulrike Kastens, European Area Economist for DWS itself. In short, it is not a cocktail that will allow the ECB to stay out of the wave of rate hikes in which the US Federal Reserve (Fed) has led the way and stepped on the accelerator during its last meeting with the first rate for the first time. increase by 50 basis points in 22 years.
In the case of Europe, where until a few months ago only one rate hike was expected (and not before the last quarter of 2022), this first rise should be followed by several in July this year. And a good communication policy on the part of the ECB is essential in the process, to avoid reactivating the spirit of what happened 11 years ago, when Jean Claude Trichet was in charge of the institution and unexpectedly decided to lower interest rates. to stop an inflation that ultimately proved transient and was caused by external factors. Although it was none of his business, that moment was the prelude to the sovereign debt crisis in the region.
For Lagarde it is therefore important to be careful, transparent and above all predictable in the message. For this reason, he made it clear in his speech that after the first rate hike from the 0% in which they have been anchored since 2016, “the normalization process will be gradual”, anticipating that there will be more upward moves before the end of the year.
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
