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Lagarde wins allies for ECB monetary tightening plans

European Central Bank President Christine Lagarde has gained key allies for her plan to raise rates above negative territory by the end of the third quarter, even after one of her own board members on Wednesday expressed some skepticism about the monetary policy path ahead.

With inflation rising, Lagarde said this week that the ECB’s -0.5% deposit rate is expected to start rising in July and could be at zero or “slightly above” that by the end of September, before advancing further. more “towards the neutral rate”.

Dutch central bank governor Klaas Knot, one of the most conservative members of the ECB’s Board of Directors, said he fully supports this plan, and Olli Rehn, head of Finland’s central bank, also expressed support for rate hikes over the summer. (in the Northern Hemisphere), as well as ECB Chief Economist Philip Lane himself.

“I totally agree, I totally support everything on (Lagarde’s) blog, I think it charts the course of monetary policy well,” Knot told a World Economic Forum panel in Davos.

Knot previously said a 0.5 percentage point hike in interest rates in July should remain a possibility, but his comments on Wednesday suggest support for smaller adjustments of 0.25 points, in line with a call from Lagarde for gradualism. .

Speaking in Helsinki, Rehn, considered by some to be a “dove,” or inclined to support a monetary policy that favors lower rates, said he also advocates 0.25 point hikes in July and September.

Lane said the trajectory of rising borrowing costs traced by Lagarde was “clear and robust”, but warned that any move beyond September would depend on how inflation develops and the impacts of the war in Ukraine.

Fabio Panetta, a clear-eyed dove, has a slightly different view, and argued that normalizing monetary policy should not be equated with bringing interest rates back to a neutral environment.

Instead, he said the aim should be to consolidate inflation at the ECB’s 2% target.

Source: CNN Brasil

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