Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Euro Leaps as ECB's Lagarde Signals End to Negative Rate by End of 3Q

Economy May 23, 2022 12:04
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters

By Geoffrey Smith

Investing.com -- The European Central Bank will most likely end its experiment with negative interest rates by the end of the third quarter, President Christine Lagarde said on Monday, all but confirming growing speculation of multiple interest rate hikes over the summer.

"Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter," Lagarde said in a blog post on the ECB's website. She added that the Frankfurt-based institution will probably end its net purchases of bonds "very early in the third quarter."

The ECB's guidance is that it won't raise interest rates before ending quantitative easing.

It's extremely rare for an ECB President to use such clear language committing to a specific course of action so far ahead of the bank's official policy meetings, and her intervention comes at a time when the ECB's credibility is under unprecedented pressure, with inflation running at near 30-year highs.

Equally rare was Lagarde's analysis that the euro's weakness is partly to blame for the ongoing inflation period.

"In particular, a large share of the inflation we are experiencing today is imported from outside the euro area," Lagarde said. "This is acting as a terms of trade “tax,” which reduces the total income of the economy – even if we take into account the higher prices being earned by exporters."

Lagarde said that over the past four quarters, the euro's depreciation had been tantamount to a transfer of 170 billion euros ($181 billion), or 1.3% of its GDP, to the rest of the world.

The euro leaped to a three-week high in response to the post, before paring gains to trade at $1.0633 by 4:53 AM ET (0853 GMT), a gain of 0.7% on the day.

The ECB has been much slower than many other advanced economy central banks to move to a tighter monetary policy stance as inflation has overshot around the world, and Lagarde again emphasized why that was.

"The tools we were deploying...aimed at combating persistent too-low inflation...are no longer appropriate," she said. "But we are also not facing a straightforward situation of excess aggregate demand: in fact, supply shocks are raising inflation and slowing growth in the near term."

As such, Lagarde reiterated her desire for a "gradual" and data-driven normalization of monetary policy. However, she added that the bank may have to act more quickly.

"There are clearly conditions in which gradualism would not be appropriated," she acknowledged. "If we were to see higher inflation threatening to de-anchor inflation expectations, or signs of a more permanent loss of economic potential that limits resource availability...we would need to withdraw accommodation promptly to stamp out the risk of a self-fulfilling spiral."

Euro Leaps as ECB's Lagarde Signals End to Negative Rate by End of 3Q
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email