(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.
Most Read from Bloomberg
The European Central Bank is likely to start raising interest rates in July and exit sub-zero territory by the end of September, President Christine Lagarde said.
“I expect net purchases under the APP to end very early in the third quarter,” she said in a blog post Monday. “This would allow us a rate lift-off at our meeting in July, in line with our forward guidance. Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter.”
With inflation running at almost four times the ECB’s 2% target, momentum in the central bank’s Governing Council had been building to raise the deposit rate from its current level of -0.5% in July. Lagarde’s comment suggests two increases of 25 basis points each at the July and September policy meetings.
While Dutch central bank chief Klaas Knot last week mentioned the possibility of a half-point rate hike if required, Lagarde has repeatedly said that policy normalization will be gradual, and reiterated that sentiment again on Monday.
“This means that it is sensible to move step by step, observing the effects on the economy and the inflation outlook as rates rise,” she said.
The euro rose to an intraday high against the dollar after her comments, strengthening as much as 0.7% to 1.0635. 10-year German bonds erased earlier gains, with yields rising 2 basis points to 0.96%.
Lagarde said the ECB would also be able to “design and deploy new instruments” to make sure that monetary policy is properly transmitted through the euro area. The first rate hike in more than a decade has increase concern about a potential bond-market fragmentation in the 19 members of the currency bloc.
Most Read from Bloomberg Businessweek
©2022 Bloomberg L.P.
