FRANKFURT – The European Central Bank is likely to lift its deposit rate from negative territory by the end of September and raise it further if inflation stabilizes at 2%, ECB President Christine Lagarde said on Monday.
He has already hastened a sharp policy change, which has seen him go all out despite pennilessing several in the face of record-high inflation in the eurozone, despite denying rate hikes this year.
“Based on the current outlook, we may be in a position to come out of negative interest rates at the end of the third quarter,” Lagarde said in a blog post published on the ECB’s website.
The ECB’s deposit rate is currently -0.5%, which means banks are charged for keeping cash in the central bank, and has been below zero since 2014 as the central bank fights very low inflation.
But in recent months, fuel prices have risen because of a variety of factors, including Russia’s aggression in Ukraine and its crackdown on other products.
Headline inflation in the eurozone hit an all-time high of 7.4% in April, and even food and energy exclusion measures exceeded the ECB’s 2% target.
Lagarde opened the door for further growth toward what economists call the neutral level – an unexpected rate that adjusts economic output to its potential – even above that.
“If we see inflation stabilizing at 2% in the medium term, a progressive further normalization of interest rates towards a neutral rate would be appropriate,” Lagarde added.
“If the eurozone economy heats up as a result of positive demand, it would make sense for the policy rate to gradually rise above the neutral rate,” he said.
However he acknowledged that their numbers were not enough to defeat Trump’s government.
“This creates more uncertainty about the pace at which current price pressures will ease, about the evolution of surplus power, and about how much inflation expectations will continue to anchor at our target,” Lagarde said.
He was attending a meeting of financial policymakers from a group of seven industrialized economies last week where central bankers and finance ministers were urged by academics to tackle inflation. (Editing by Balaj Korani and Toby Chopra Reporting by Francesco Canepa)