untitled design

It is “very unlikely” that the ECB will raise interest rates in 2022, says Lagarde

It is very unlikely that the European Central Bank (ECB) will raise interest rates next year, as inflation remains too low, ECB President Christine Lagarde said on Wednesday (3) reacting to market bets in a change as early as October 2022.

“In our future guidance on interest rates, we clearly articulated the three conditions that need to be met before rates start to rise,” she said at an event in Lisbon.

“Despite the current spike in inflation, the outlook for inflation over the medium term remains subdued, and therefore it is very unlikely that these three conditions will be met next year.”

Last week, Lagarde was unable to stifle market expectations, and investors even briefly priced two highs next year, then backtracked and forecast a rise next October.

“Market interest rates have risen in recent weeks, mainly as a result of increased market uncertainty about the outlook for inflation, contagion from abroad on interest expectations in the euro area and some questions about the calibration of asset purchases in a post-pandemic world,” said Lagarde.

She also dismissed the recent rise in yields, warning that the ECB will continue to use emergency asset purchases to curb borrowing costs.

“An undue tightening of financial conditions is not desirable at a time when purchasing power is already being squeezed by larger energy and fuel bills, and would represent an unjustifiable obstacle to recovery.”

The ECB and financial investors have been falling out over the likely course of inflation, the most important metric for monetary policy.

As the ECB sees price growth retreating from levels above 4% to below its 2% target next year, investors are banking on more lasting pressures on prices that would trigger monetary policy tightening.

Reference: CNN Brasil

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights

 

Most popular