Sat, Feb 05, 2022 page6

• Lagarde pivots on ECB interest-rate hikes for this year

  • Bloomberg
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  European Central Bank (ECB) President Christine Lagarde is no longer ruling out an interest-rate hike this year, a pivot toward the tightening stance of global peers that officials privately see materializing with a shift in policy guidance as soon as next month.

  Investors brought forward bets on ECB action as the monetary chief delivered surprisingly hawkish comments citing unexpected record inflation data, contrasting with an earlier decision statement on Thursday that kept intact its formal view that price increases would ease.

  She spoke after policymakers agreed that it is no longer sensible to exclude a rate move this year, and that bond buying could end in the third quarter, said officials familiar with their thinking who asked not to be identified because such discussions are confidential.

  

  European Central Bank (ECB) Vice President Luis de Guindos, left, and ECB President Christine Lagarde, center, address a news conference in Frankfurt, Germany, on Thursday.

  Photo: EPA-EFE

  An ECB spokesman declined to comment.

  Those views were reflected in Lagarde’s public remarks, although she also insisted that the Governing Council would not rush to conclusions on its formal stance, telling reporters at a virtual news conference to wait for upcoming meetings for a fuller judgement.

  That would include a reassessment of its asset purchases next month.

  “Concern was across the board,” she said, referring to officials’ reaction to another record reading for eurozone inflation released the previous day. “Our March meeting, and then later on, our June meeting will be critically important to determine whether the three criterias of our forward guidance are fully satisfied.”

  The comments point to sands shifting under the ECB’s monetary stance amid accelerating global tightening. Until now, Frankfurt policymakers had protested at investor bets on the prospect higher borrowing costs this year.

  Earlier on Thursday, the Bank of England raised rates by one-quarter of a percentage point, in a decision where only the opposition of Governor Andrew Bailey prevented an even bigger move. The US Federal Reserve is also poised to remove stimulus.

  “Compared with our expectations in December, risks to the inflation outlook are tilted to the upside, particularly in the near term,” Lagarde said. “There was also a concern and a determination around the table not to rush into decision unless we had a proper and thorough assessment based on data and the analytical work that will take place in the next few weeks.”

  The euro extended gains to more than 1 percent, set for the biggest advance in more than a year. Investors briefly priced in a 10-basis-point hike as soon as June, and up to 40 basis points of tightening by year-end.

  The news briefing turned out “more hawkish than expected, with Lagarde opening up the possibility of material changes in ECB policy following the forecast round in March,” Evercore ISI strategist Krishna Guha said in a report.

  Consumer prices in the euro area rose an annual 5.1 percent last month, surpassing economist estimates by the most in at least two decades and remaining more than double the ECB’s 2 percent target.

  Lagarde said there were signs that supply bottlenecks that have held back manufacturing firms and pushed up costs are easing, although they would persist for some time.

  While the president acknowledged that measures of underlying inflation had risen, their persistence is uncertain, she said.

  Wage growth — deemed a key factor for faster price increases in the medium term — remains “muted overall,” she said.
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