Belgium, (Brussels Morning Newspaper) The European Central Bank (ECB) announced plans to up its deposit rate to zero or more before winter.
This means that the ECB will increase the rate by at least 50 basis points in the next four months or so, according to Reuters reporting on Tuesday.
“We’re moving very likely into positive territory at the end of the third quarter,” she noted in an interview with Bloomberg TV.
The ECB has maintained its expansive monetary policy for more than a decade and dismissed calls for change of policy in recent years, predicting that rising inflation is only transitory.
According to money markets, the ECB will up its rate roughly 64 basis points by mid-September and about 110 basis points by the start of 2023.
Inflation in the eurozone has exceeded ECB’s expectations and reached record-high level of 7.4% in April, in contrast with the bank’s target rate of 2%.
In the last eight years or so, the ECB has been charging commercial banks for their idle cash, maintaining rates below zero and dismissing warnings about its policies.
Gradual shift of policy
More recently, she stressed that the central bank would move gradually as supply was driving inflation.
“I don’t think we are in a situation of surging demand at the moment,” Lagarde noted and added “it’s definitely an inflation that is driven by the supply side of the economy.”
She announced that the ECB will decide how to proceed based on its projections and forward guidance.
Lagarde may present more details about the ECB’s plans at Davos later this week, after the release of fresh economic indicators.
The market focus is now on the US Federal Reserve, which is expected to commit to tightening of its policy with the aim of reining in soaring inflation. Jerome Powell, chair of the Federal Reserve, is to hold a speech at Davos later today.
Strategists blame central banks and hawkish policies for market turmoil and predict that reversal of policy is necessary to reverse negative trends.
US BlackRock investment management company noted that a “dovish pivot by the Fed” would prompt it to think about upping exposure to stocks.