European Central Bank (ECB) President Christine Lagarde has yet to make it clear that the rate hike is imminent and will be significant.
In a blog post on the ECB’s own website, Christine Lagarde outlined a quick way to “normalize” interest rates in the run-up to the expected high inflation in the medium term, supporting extreme ECB measures, including a more negative, interest rate cut – from zero. From low and quantitative easing (QE) which has pumped money into the economy through a process including buying billions of euros in an asset purchase program (APP) bond.
“In light of the evidence presented above, I expect net purchases under the APP to end very soon in the third quarter. This will allow us to raise rates in line with our forward guidelines at the July meeting. Should be able to.
The most important ECB interest rate is currently -0.5 percent. Coming out of negative interest rates in the last days of September means a half-percentage point increase – probably 0.25% each in July and September.
The ECB president’s remarks are the clearest so far, with other major economies, including the United States and the United Kingdom, lagging behind in raising interest rates as inflation accelerates this year.
A higher government interest rate would immediately translate into higher mortgage bills for people with tracker mortgages, and value variable interest rates are likely to follow fairly quickly.
Completion of the APP asset purchase will increase the cost of borrowing for the government, which has benefited as the ECB’s relaxed monetary policy has increased the demand for loans in recent years.
In her contribution, Christine Lagarde says that due to the recent announcements, investors in the financial markets have reacted in anticipation of the ECB’s move.
As a result, investors have gradually updated their expectations about the ECB’s monetary policy objectives. This is a correction of interest rate expectations and the long end of the yield curve has been reflected in an upward movement in real interest rates. Thus a monetary policy adjustment has been made and has already worked through the euro area economy for the last six months. ”
However, he said more transparency is needed now about the ECB’s plans.
“But as the date of the expected rate hike approaches, it becomes more important for us to clarify the path to normalization of monetary policy – especially in the context of the complex environment where monetary policy finds itself in the eurozone.”