ECB interest rate hike in summer ?: Lagarde soon offers prospect of a turnaround in interest rates

Status: 11.05.2022 14:08

After more than six years of zero interest rate policy, the benchmark interest rate in the euro zone could rise again for the first time in the summer, according to ECB head Christine Lagarde. An increase in July is considered increasingly likely.

ECB head Christine Lagarde announced a key interest rate hike in the summer. The hike could come a few weeks after the end of bond purchases, said the president of the European Central Bank (ECB) in the Slovenian capital Ljubljana. The end of the purchases is scheduled for the beginning of the third quarter.

Inflation puts the central bank under severe pressure

After an initial rate hike, further hikes should be gradual, Lagarde said. The Frenchwoman indicated inflation, which is expected to remain high for some time. In April, inflation rose to 7.5 percent. This was the highest level since the introduction of the euro.

Other ECB representatives had previously talked about a possible interest rate hike in July, such as ECB Director Frank Elderson. Bundesbank President Joachim Nagel called for a quick turnaround in monetary policy. We must avoid that prices and wages accumulate each other. “In any case, the exit from monetary policy, which is very stimulating for the economy, should happen quickly and smoothly,” asked the head of the Bundesbank. He also pointed to July as a possible date for an increase in the key ECB interest rate.

Zero interest since 2016

The ECB lowered the benchmark interest rate to zero in March 2016 and has remained unchanged since then. The deposit rate at which banks can park money with the ECB is minus 0.5 percent. Institutions have to pay money for this – they often pass the costs on to customers in the form of custodian fees and negative interest rates. Yesterday, however, ING announced the early termination of default interest for the vast majority of customers.

Other Western central banks have already raised interest rates, such as central banks in the United States and Great Britain.

The ECB prepares the financial markets for the reversal of interest rates

Alexander Schmitt, HR, May 11, 2022, 2:02 pm

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