Christine Lagarde, boss of the ECB, whistles the end of the game

It has now become clear that negative interest rates are more than ever due to borrowed time. The European Central Bank reaffirmed this on Monday, indicating that it must raise its deposit rate to zero by the end of September and could raise it if necessary. “Based on current projections, we should be able to exit negative interest rates by the end of the third quarter.”, its President Christine Lagarde wrote in a blog post posted on the ECB website. The deposit rate is currently set at -0.5%, which is the equivalent of charging banks willing to deposit cash with the central bank.

A decision on the first increase should be made in July, Christine Lagarde said, shortly after the completion of the net asset purchase.

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Fighting inflation

These statements illustrate a more visible reversal in the ECB’s monetary policy, while Christine Lagarde at the end of last year considered a rate hike in 2022 unlikely. Because the deposit rate has been in negative territory since 2014. , the central bank has been at the mercy of low inflation. However, in recent months, price increases have accelerated, especially for fuel, due, among other things, to Russia’s invasion of Ukraine.

The consumer price index reached a record high of 7.4% year-on-year in April, and excluding food and energy inflation is well above the 2% target set by the ECB. “If we see inflation stabilize at 2% in the medium term, it would be appropriate to gradually continue normalizing the interest rate towards neutral”adds Christine Lagarde, who even mentions the possibility of continued growth beyond the neutral rate “if the eurozone economy was overheating”.

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Christine Lagarde, however, stressed that the pace and extent of these rate hikes could not be determined from the outset due to supply uncertainties, including restrictions related to COVID-19 in China and the impact of the conflict in China and Ukraine. “This creates a lot of uncertainty about how quickly current price pressures will ease, how excess capacity will develop, and how well inflation expectations are tied to our target.”said the president of the ECB.

“Negative interest rates are a thing of the past”

Christine Lagarde’s remarks on Monday go in the direction of Bundesbank boss Joachim Nagel, who called for a rapid increase in interest rates late last week to curb skyrocketing prices.

“When you’re in inflation around 7% (…), the conclusion is that interest rates should go up.”acquitted Joachim Nagel after the G7 meeting in Germany, adding: Of course, negative interest rates are a thing of the past.”. During the meeting, the finance ministers and heads of central banks of the seven major powers (USA, Japan, Canada, France, Italy, Great Britain, Germany) made the fight against inflation one of their priorities.

On Monday morning, the euro was positive about this new statement from the ECB. It rose strongly against the dollar. Around 11:35 a.m., the euro climbed 1.02% to $1.0671, after hitting $1.0682, a month-on-month high. The European currency has been suffering for several months now from faster monetary tightening in the US, which is strengthening the dollar.