ECB / End of debt purchases: Luis de Guindos evokes July and Christine Lagarde temperate

Posted 21 April, 2022

"It makes no sense to set a day and time when we depend on economic data" to make a decision on rates, says the president.

The President of the European Central Bank (ECB) Christine Lagarde assured Thursday that the exact moment of the end of the net debt purchase program would depend on economic indicators, a few hours after the vice-president of the institution had mentioned the month of July.

The ECB has officially set the course for the third quarter of 2022 to stop buying new bonds on the markets, but the question will be to determine “when in the third quarter”, underlined Ms. Lagarde.

“And that will then lead us to assess whether or not a rate hike is necessary,” she added. These have been maintained at historically low levels despite inflation.

The Frankfurt institution is under pressure to start raising its rates, a movement already largely initiated by the other major central banks in the world, in an attempt to stem the soaring prices accentuated by the war in Ukraine.

"It makes no sense to set a day and a time when we depend on economic data" to make a decision on rates, said the ECB president again.

The vice-president of the institution, Luis de Guindos, had affirmed a little earlier Thursday that the net purchase of assets, the main instrument of monetary support for the economy, "should end in July", according to an interview with the Bloomberg agency.

“From the current perspective, July is possible and September, or later, is also possible,” he said.

The timing of the first-rate hike will depend on projections to be released at the ECB's next meeting on June 9, de Guindos said.

Ms. Lagarde also indicated that the ECB was not targeting a specific exchange rate between the euro and the dollar: “We pay attention to it. It clearly has an impact on inflation. But we are not targeting any exchange rate”.

In the eurozone, inflation hit a record 7.5% in March, well above the ECB's medium-term target of 2%.

In the sequence planned by the ECB, a rate hike – the first since 2011 – is supposed to occur “sometime after” the end of debt purchases.

Within the Governing Council, supporters of a rapid tightening of monetary policy are increasingly vocal, fearing that the ECB will act too late and can do nothing more to stem the rise in prices.

Among these "hawks", the head of the German Central Bank Joachim Nagel again worried on Wednesday about an uncontrolled rise in prices and pleaded for weaning as fast as possible.

Central banks are using rate hikes as a tool to try to tame inflation, but pulling the trigger too soon risks hurting growth at a sensitive time for the European economy, weakened by geopolitical tensions.

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22 April, 2022 09:25

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