Christine Lagarde, president of the European Central Bank (ECB), did not want to wait for the press conference that she will give on June 9 in Amsterdam. On the institution’s blog, the head of the ECB has decided to launch a clear signal to the markets on Monday: in September the era of negative rates, which has lasted eight consecutive years, will end in the euro zone. In other words, there will be at least two increases in interest rates that will mean that the deposit facility rate, now at -0.5%, will go to 0%. In the article, Ella Lagarde states that she expects net debt purchases to end “very early” in the next quarter in order to carry out a first rate hike in July. “It is likely that we will be in a position to get out of negative interest rates by the end of the third quarter,” adds the Frenchwoman, pointing to another increase in September.
The ECB proposed from the beginning a tightening of monetary policy, “step by step”. However, it is already beginning to jump. High inflation continues to worry hawks, which even put on the table to start with a rise of 0.5% next July if the rise in prices continues to spread beyond the cost of energy. The ECB will meet at the beginning of June in Amsterdam, where Lagarde is expected to announce the end of the asset purchase program (APP) launched by Mario Draghi in 2014. The hardest sector even hopes that put a date on it: July 1. That would allow the first increase in interest rates to be carried out before the summer, predictably of 0.25%, despite demands to go further by some central bankers, such as that of the Netherlands.
Statements made in recent weeks by several members of the ECB’s Governing Council already pointed towards that calendar. And the markets also assumed that the Eurobank would not stop there. However, Lagarde has suggested in an unusual way (via his blog) another rise in September. That would mean putting the deposit facility rate at 0% and interest rates at 0.5%, ending a period of negative rates that started in 2014 to get the euro zone out of the sovereign debt crisis and avert the risk of deflation. “If we see inflation stabilizing at 2% in the medium term, further progressive normalization of interest rates towards a neutral rate will be appropriate. But the pace and general scale of the adjustment cannot be determined former before”, adds Lagarde. A neutral rate is one that is considered not to boost the economy, but not to depress it either. Not surprisingly, Lagarde recalls that galloping inflation is due to a shock of offer, reason why it warns that “the normalization of policies” must be calibrated “carefully”.
The hawks have achieved that more and more pigeons line up around a rate hike to curb inflation. “We have to give a signal to the markets, to social agents and to citizens that we take high inflation seriously,” said the president of the Bank of Finland, Olli Rehn, in an interview with EL PAÍS. Only the Italian Fabio Panetta, a member of the ECB’s executive committee, has stood out in recent weeks by suggesting that rates should be increased until the GDP growth data for the second quarter, published by Eurostat on July 29, should be known. However, Lagarde’s words point to a faster tightening, following in the footsteps of the Bank of England or the Federal Reserve, which even talks about starting to reduce its balance sheet.
After the publication of Lagarde’s article, the euro has shot up to almost $1.07. At first, the stock markets curbed the optimism with which they started the day, although at the end of the day large gains were made, led by the banking boom, which will benefit from the rate hike. In Spain, Banco Sabadell rose 5.99%; Santander, 3.86%; CaixaBank, 3.75%; Bankinter, 3.31%, and BBVA, 2.6%. The debt markets, for their part, immediately shot up: the German 10-year bond touched 1% at noon, while the Spanish reached 2.119% and the Italian, 3.026%. The Spanish risk premium, in addition, has touched 113 points.
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