ECB: chief economist pleads for a gradual increase in rates

The chief economist of the European Central Bank (ECB), Philip Lane, estimated on Monday that the exit from negative rates in the euro zone will have to be done gradually, confirming the perspective recently drawn by the president of the institute Christine Lagarde.

Getting out of negative rates in September ‘makes sense’, amid record inflation, and a ‘benchmark’ pace for doing so would be two hikes of ’25 basis points’ each, in July and September, said Philip Lane, in an interview with the Spanish business daily Cinco Días.

The ECB’s benchmark rate is currently set at -0.5%, the level it has been at since 2019. This is the interest rate paid by banks that entrust part of their dormant deposits to the central banks of the European Union. eurozone.

This policy, which began in 2014, aimed to support credit to households and businesses to stimulate economic activity and, ultimately, prices.

Last Monday, ECB President Christine Lagarde wrote that an exit from negative interest rates was likely ‘by the end of the third quarter’, ie in September, in a highly noted blog post.

“Any discussion of further moves (in rates) should argue for a stronger move than this streak of increases in July and September,” adds Lane.

Within the Governing Council of the ECB, the Dutch Klaas Knot sees a rate hike of 50 basis points as soon as possible in July if inflation increases.

Inflation hit a record 7.5% year on year in April in the eurozone, driven by soaring energy prices once morest a backdrop of war in Ukraine, and the indicator for May, expected on Tuesday, will be very scrutinized.

The ECB looks set to tread lightly to bring inflation down, while the US Fed on Wednesday estimated rate hikes of half a percentage point, faster than the usual quarter-point hikes. , will ‘undoubtedly be appropriate’ in the coming months.

“Our current assessment of the situation, where we believe the medium-term inflation outlook is in line with our 2% target, calls for a gradual approach to monetary normalization,” Lane said.

/ATS