The European Central Bank (ECB) is likely to start raising interest rates in July to curb inflation. Interest rates are expected to no longer be in negative territory by the end of September. That said ECB President Christine Lagarde in a blog post.
Due to the current negative interest rates, it costs banks money to store capital at the ECB, among other things.
Lagarde reiterated that the ECB will end its debt-buying program early in the third quarter. Only then is the central bank able to raise interest rates, which are in line with its rate? “Based on the current outlook, we will likely be able to exit negative interest rates by the end of the third quarter,” she wrote.
Currently, inflation is nearly four times above the ECB’s 2% target. Policymakers are increasingly calling for an increase in the deposit rate from the current level of minus 0.5 percent. In her comments, Lagarde hinted at a first interest rate step of a quarter of a percentage point in July and another such step in September. It would be the first-rate hike in ten years.
Klaas Knot, president of De Nederlandsche Bank, previously suggested the possibility of raising interest rates by half a percentage point in one go if necessary. Lagarde has repeatedly called for policy normalization to be gradual. She also maintained that position on Monday. “This means it makes sense to take it one step at a time and look at the effects on the economy and the inflation outlook as interest rates rise,” she said.