Banking and inflation: ECB prepares minds for first interest rate hike in July

The president of the European Central Bank (ECB) on Wednesday laid the groundwork for raising interest rates in July to cope with rapid inflation, which will mean the beginning of the end of money.lightin the euro area, after the United States.

European Monetary Authority “will end“first to your net asset purchases”at the beginning of the third trimester“ie in July, then the first rate increase should take place”After a while“, in”period of only a few weeks“Ms. Lagarde warned in a speech in Ljubljana.

While inflation in the eurozone in April reached a record 7.5% for the year, the ECB seems determined to return the unit to the 2% target for the next two years.

His choice is Cornelian. If rates are not raised, this could lead to a slight increase in inflation, in particular due to higher wages after high inflation. Growing them too fast can slow down the already weak growth.

Again in April, the ECB said it wanted to wait. But the shock in prices, including energy tariffs, caused by Russia’s war against Ukraine and its multiple deficits prevents it from being idle.

Journey in stages

The next meetings of the European Central Bank on June 9 in Amsterdam, and then on July 21 in Frankfurt, also promise to be a turning point before the summer break.

After the first rate increase, the normalization process will be gradual“, said Mrs. Lagarde. She has been talking about since April.”travelstep by step, heralding a series of rate hikes after early summer.

This change of course is mainly due to “falconsadvocates a tighter monetary policy in the Board of Governors, the ECB’s decision-making body.

The latter seems to have taken over. “pigeons“, Supporters of long-term support for the economy.

As inflation in the eurozone remains high, we must act“Now Joachim Nagel, president of the German Bundesbank, scored on Tuesday.

According to this “falcon“A monetary shift is possible now, but it will be more difficult if we have to wait for the end of the war in Ukraine.

It is time to put an end to measures that have been activated to combat low inflation“Isabel Schnabel, a member of the ECB’s executive board, added during a speech in Vienna on Wednesday.

This means that the era of net repayment of public and private debt should end, as well as negative interest rates, by taxing today at -0.5% of bank deposits that do not operate in the ECB, instead of being distributed on credit.

A policy that has been regularly criticized in the first European economy, where many Germans accuse the ECB of fueling rising prices and impoverishing savers.

In a few months “money will be a little less easy“and”interest rates will rise, but very gradually“Francois Villeroy de Gallo, chairman of the Bank of France, told France Inter on Wednesday.

The first increase since 2011

The ECB has not seen a rate hike since 2011, but is now clearly preparing to follow in the footsteps of other major central banks that are ahead of the issue.

In early May, the US Federal Reserve raised key rates by 0.5 points to fight inflation, which was even higher than in the euro area. And the Bank of England (BoE) has raised its rate to its highest level since 2009.

As for the eurozone, Gilles Moek, Axa’s chief economist, told AFP in an interview that “first rate hike in July and then return to zero (negative rate) in September, before a long pause“.

However, he does not expect a long series of increases.

Between the continuation of the war in Ukraine, the difficult situation with Covid in China and the side effects of the rapid tightening of financial conditions in the United States, the ECB will not be able to easily continue normalization after 2022.“, – he concludes.

AFP

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