The ECB is preparing minds for the first rate hike in July

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Frankfurt (AFP) – The President of the European Central Bank (ECB) on Wednesday set a stage for raising interest rates in July to deal with rising inflation, which will mark the beginning of the end of “easy money.” in the euro zone, then the United States.

The European monetary institution will “first end” its net purchases of assets “at the beginning of the third quarter”, i.e., July, then an initial rate increase should take place “after some time”, in “a during only a few weeks “, warned Ms. Lagarde in a speech given in Ljubljana.

While inflation hit a record rate of 7.5% for a year in April in the euro zone, the ECB seems determined to return this aggregate towards its 2% target over the next two years.

His choice was Cornelian. Failure to raise charges could pose the risk of stimulating inflationary trends, particularly by wage increases following high inflation. Raising them too fast can even slow down weak growth.

Back in April, the ECB said it wanted to wait. But the shock to prices, particularly energy tariffs, fueled by Russia’s war against Ukraine and the multiple shortfalls, is preventing it from remaining idle.

Travel through the stages

Also, the next European Central Bank meetings on June 9, in Amsterdam, then on July 21 in Frankfurt, promise to be important before the summer holidays.

“After the initial rate increase, the normalization process will be gradual,” Lagarde said. He has been speaking since April about a “journey” in stages, preparing for a series of rate increases after the start of the summer.

This change of direction is mainly driven by “hawks” pushing for a tighter monetary policy within the Governing Council, the ECB’s decision -making body.

The latter seems to have taken over the “pigeons”, followers of long -standing support for the economy.

“While inflation in the euro zone continues to be high, we must act” today, hammered Tuesday Joachim Nagel, president of the German Bundesbank.

According to this “hawk”, a monetary shift is possible now but it will be more difficult if we wait for the end of the war in Ukraine.

“It’s time to end the measures that have been activated to combat low inflation”, Isabel Schnabel, a member of the ECB’s executive board, added in a speech in Vienna on Wednesday.

Which means that the era of net purchases of public and private debt should end as at negative rates, by taxing now on -0.5% bank deposits that sleep with the ECB instead of being distributed on credit.

A policy regularly criticized in Europe’s first economy, with many Germans accusing the ECB of fueling rising prices and making it harder for savers.

In a few months “money will be easier” and “interest rates will increase but gradually”, François Villeroy de Galhau explained on Wednesday, governor of the Banque de France, on France Inter radio. .

First increase since 2011

The ECB has not experienced a rate increase since 2011 but is now clearly preparing to follow in the footsteps of other major central banks ahead of the curve on the subject.

In early May, the American Federal Reserve (Fed) raised its key rates by 0.5 points to combat inflation that is 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, who was interviewed by AFP, expects “an initial rate increase in July, followed by a return to zero (of the negative rate) in September, before the long break” .

However, he did not expect a long series of increases.

“Between the resumption of the war in Ukraine, a complex Covid situation in China and the side effects of the rapid restriction of financial conditions in the United States, the ECB will not easily resume its normalization despite 2022”, he concludes.

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