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ECB’s Lagarde cements expectations for upcoming rate hike

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The European Central Bank is likely to end its bond-buying stimulus programme early in the third quarter of this year, followed by a rate hike that could come just “a few weeks” later, ECB President Christine Lagarde said on Wednesday, according to Reuters.

Lagarde was cementing market expectations that the ECB will raise its policy rate for the first time in over a decade in July in a bid to tame record-high euro zone inflation – the result of surging energy prices spilling over to other goods.

Most other major central banks have already raised borrowing costs but the ECB, which had fought too low inflation for a decade, is still pumping cash into the financial system via bond purchases.

“My expectation is that they should be concluded early in the third quarter,” Lagarde said at a conference in the Slovenian capital.

“The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases…(and) this could mean a period of only a few weeks,” added Lagarde

She was joining a growing number of ECB policymakers calling for a July hike after inflation hit 7.5% in the euro zone last month and even measures that strip out food and energy prices rose above the ECB’s 2% target.

ECB board member Frank Elderson said on Wednesday the ECB may consider a rate hike in July, a move that has also been advocated by Bundesbank president Joachim Nagel among others. 

Estonian governor Madis Mueller said the ECB’s rate on bank deposits, which is currently -0.5%, may rise above zero by the end of the year for what would be the first time since 2014.

“Even if we go by 25 basis point increments, we may get to a positive rate by the end of the year,” he told Reuters in an interview.