Lagarde Omits Remark Ruling Out ECB Rate Hike For This Year

European Central Bank President Christine Lagarde on Thursday did not reiterate her earlier comment that an interest rate hike is unlikely this year, instead her remark that risks to inflation are on the upside fueled expectations that policymakers are gearing up for a raise later this year.

“Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term,” Lagarde said in her introductory statement to the post-decision press conference.

“If price pressures feed through into higher than anticipated wage rises or the economy returns more quickly to full capacity, inflation could turn out to be higher.”

Risks to the economic outlook were seen as broadly balanced.

Eurozone inflation accelerated to a record 5.1 percent in January. Core inflation is also high at 2.3 percent, well above the bank’s target of 2.0 percent.

The bank expects inflation to remain elevated for longer than previously expected.

The ECB Chief said that the March and June sessions of the Governing Council would be crucial to determine the need to change its forward guidance.

While the latest comments marked what many economists perceived as a ‘hawkish shift’ in stance, Lagarde stressed that the ECB will not remain complacent, but it will not rush into any process.

“We will follow the sequence that we have set for ourselves, we will verify the forward guidance criteria and we will be gradual in whatever we do,” Lagarde said.

Earlier on Thursday, the bank left its key interest rates and forward guidance unchanged. As announced in December, the bank said it will discontinue purchasing assets under its Covid-19 pandemic stimulus scheme at the end of March.

The ECB reaffirmed that net purchases under the PEPP could also be resumed, if necessary, to counter negative shocks related to the pandemic.

From October 2022 onwards, the Governing Council will maintain net asset purchases under the APP at a monthly pace of EUR 20 billion for as long as necessary to reinforce the accommodative impact of its policy rates, the bank reiterated.

The bank continues to expect net purchases to end shortly before it starts raising the key ECB interest rates.

“Taking all this into consideration and assuming that energy prices do not dive over the next four weeks, we expect the ECB to speed up the reduction of net asset purchases and to bring them to an end in September, allowing the ECB to hike the deposit rate at least once before the end of the year,” ING economist Carsten Brzeski said.

Source: Read Full Article