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Lagarde suggests ECB rate hike could come as soon as July

European Central Bank president Christine Lagarde has hinted the Frankfurt-based institution could raise its interest rates from historic lows as soon as July as inflation in the eurozone soars.

The ECB should end bond-buying “early in the third quarter”, Lagarde said in a speech in Ljubljana, and could then raise interest rates “only a few weeks” later.

The comment is the clearest sign yet from Lagarde that the ECB is ready to move on rates soon rather later, as the institution trails behind the US Federal Reserve and other major central banks that have already taken the step to combat inflation.

ECB policymakers will next meet on June 9 and July 21 to decide their course of action.

Any hike would be the ECB’s first in over a decade and would lift rates from their current historically low levels.

These include a negative deposit rate which effectively charges banks to park their excess cash at the ECB overnight.

Inflation in the eurozone reached 7.5% in April, an all-time high for the currency club and well above the ECB’s own 2% target.

The surge, driven in no small part by steep increases in prices for energy due to the Russian invasion of Ukraine, has strengthened calls for the ECB to follow its peers towards interest rate hikes.

The Fed and the Bank of England among others have been raising rates in efforts to stop price rises.

German central bank president Joachim Nagel said Tuesday he “will advocate a first step normalising ECB interest rates in July”.

At its last meeting in April, the ECB’s governing council resolved to end a bond-buying scheme that has been used to stoke economic growth “in the third quarter”.

Earlier, ECB member and Bank of France head Francois Villeroy de Galhau told France Inter radio that the illusion of a limitless and costless debt is attractive but “very dangerous”.

France borrowed heavily during the Covid-19 pandemic to stabilise its economy, pushing the public debt from just under 100% of gross domestic product in 2019 to nearly 113% last year.

Article Source – Lagarde suggests ECB rate hike could come as soon as July – RTE

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