The president of the European Central Bank, Christine Lagarde, said on Wednesday that it was “highly unlikely” that the bank would raise its key interest rates in 2022, as other major central banks prepare to tighten their monetary policy.
ECB: a rate hike in 2022 is “very unlikely”, says Lagarde
The president of the European Central Bank, Christine Lagarde, said on Wednesday that it was “highly unlikely” that the bank would raise its key interest rates in 2022, as other major central banks prepare to tighten their monetary policy.
Despite the current inflationary surge in the eurozone, the “medium-term inflation outlook remains modest” so that “the conditions for a rate hike” will not be met next year, explained the Frenchwoman in a speech in Lisbon.
The ECB wants to maintain favourable financing conditions for households and businesses so as not to jeopardise the still fragile recovery.
“An undue tightening of financing conditions is not desirable at a time when purchasing power is already being squeezed by rising energy and fuel bills”, and would represent an “undesirable headwind for the recovery”, Ms Lagarde said.
She thus pushed back market expectations, which see a first rate hike in December 2022, more clearly than at the institute’s last press conference at the end of October.
The stronger-than-expected rise in eurozone inflation, to 4.1% year-on-year in September, the highest rate of price increases for more than 13 years, has put pressure on the ECB to react.
But for now, the bank expects inflation to fall back in 2022 and only reach 1.5% in 2023, still far from its 2% target.
However, the inflation forecast for the following year and the one after that would have to be within its target before the ECB would start to react on rates.
The markets’ attention will be focused this Wednesday on the US Fed, which is meeting its monetary policy committee.
While the ECB has opted for a wait-and-see approach to inflation, preferring to continue to support the economy as the recovery falters, the Fed announced on Wednesday that it would start reducing its bond purchases on the markets this month, with the aim of stopping them definitively in mid-2022.
And as early as Thursday, the Bank of England (BoE) could raise its key rate for the first time since August 2018.
The ECB sees a good reason to delay in its young history. Ten years ago, its former president Jean-Claude Trichet raised rates too early, just as the crisis was about to hit, a mistake quickly corrected by his successor Mario Draghi, but one that has remained in the annals of the institution.
