The President of the European Central Bank (ECB) on Wednesday set the stage for an interest rate hike in July to deal with soaring inflation, which would mark the beginning of the end of “easy” money. in the euro zone, after the United States.
The European monetary institution “is going to put an end” to its net asset purchases “at the start of the third quarter”, i.e. July, then a first rate hike should take place “some time afterwards”, in “a period only a few weeks”, warned Ms. Lagarde in a speech delivered in Ljubljana.
While inflation reached the record rate of 7.5% over one year in April in the euro zone, the ECB seems determined to bring this aggregate back towards its target of 2% in the next two years.
His choice is Cornelian. Failure to raise rates would risk fueling inflationary trends a little more, in particular via wage increases following high inflation. Raising them too quickly could further slow already weak growth.
Again in April, the ECB said it wanted to wait. But the shock on prices, energy tariffs in particular, fueled by the war waged by Russia against Ukraine and the multiple shortages, prevents it from remaining idly by.
– Journey by stages –
Also, the next meetings of the European Central Bank on June 9, in Amsterdam, then on July 21 in Frankfurt, promise to be crucial before the summer break.
“After the first rate hike, the normalization process will be gradual,” said Lagarde. She has been talking since April about a “journey” in stages, presaging a series of rate hikes after the start of the summer.
This change of course is mainly pushed by the “hawks” advocating a stricter monetary policy within the Governing Council, the decision-making body of the ECB.
The latter seem to have gained the upper hand over the “doves”, followers of prolonged support for the economy.
“While inflation in the euro zone continues to be high, we must act” now, hammered Tuesday Joachim Nagel, president of the German Bundesbank.
According to this “hawk”, a monetary shift is possible now but will be more difficult if we have to wait for the end of the war in Ukraine.
“It is time to put an end to the measures that have been activated to fight against low inflation,” added Isabel Schnabel, member of the ECB’s executive board, in a speech in Vienna on Wednesday.
This means that the era of net redemptions of public and private debt must end like that of negative rates, by taxing today at -0.5% bank deposits dormant at the ECB instead of being distributed in credit.
A policy regularly criticized in the first European economy, where many Germans accuse the ECB of fueling the rise in prices and impoverishing savers.
In a few months “money will be a little less easy” and “interest rates will rise but very gradually”, explained Wednesday François Villeroy de Galhau, governor of the Banque de France, on France Inter radio. .
– First increase since 2011 –
The ECB has not experienced a rate hike since 2011 but is now clearly preparing to follow in the footsteps of other major central banks that are ahead of the curve on the subject.
At the beginning of May, the American Federal Reserve (Fed) raised its key rates by 0.5 points to combat inflation that was even higher than in the euro zone. And the Bank of England (BoE) raised its rate to its highest since 2009.
For the euro zone, Gilles Moec, chief economist at Axa, interviewed by AFP, expects “a first rate hike in July, followed by a return to zero (of the negative rate) in September, before a long break”.
However, he does not expect a long series of increases.
“Between the continuation of the war in Ukraine, a complicated Covid situation in China and the side effects of the rapid tightening of financial conditions in the United States, the ECB will not be able to easily continue its normalization beyond 2022”, he concludes.