Lagarde says the ECB is very unlikely to raise interest rates in 2022

Frankfurt — European Central Bank is very unlikely to raise interest rates next year as inflation remains too low, European Central Bank Governor Christine Lagarde said Wednesday, pushing market bets back in October next year. rice field.

With inflation at its highest level in 13 years, the market is increasingly betting that the ECB will withdraw from its super-simple monetary policy and raise interest rates for the first time in more than 10 years next year.

“The forward guidance on interest rates clearly sets out three conditions that must be met before interest rates start to rise,” she told an event in Lisbon.

“Despite the current surge in inflation, the outlook for medium-term inflation remains subdued, so it is very unlikely that these three conditions will be met next year.”

Lagarde’s comment comes after she failed to push back market expectations last week and investors temporarily bid with two rate hikes in 2022.

However, investors seem to be in the spotlight this time, with the next move pricing of 10 basis points postponed to Wednesday, October-December 2022.

Yields have fallen across the board, as have the German and Italian debt spreads, which are key indicators of the ECB.

Headquarters of the European Central Bank (ECB) in Frankfurt, Germany, March 12, 2016. (KaiPfaffenbach / Reuters)

Spain’s central bank governor, Pablo Hernandez de Cos, made an influential voice at the interest rate setting board, repeating Lagarde’s message, arguing that market prices were out of sync with forward guidance.

“Market interest rates have risen in the past few weeks, primarily on increasing market uncertainty over inflation outlooks, spillover to eurozone policy rate expectations from abroad, and adjustments to post-pandemic asset purchases. It’s the result of a few questions, the world, “said Lagard.

She also helped the recent rise in yields and warned that the ECB would continue to use emergency asset purchases to curb borrowing costs.

“With high energy and fuel bills already squeezing purchasing power, overly strict funding conditions would be undesirable and would be an unreasonable headwind for recovery,” Lagarde said.

The ECB and financial investors have been at odds with the potential path of inflation, which is the single most important indicator policy, as the ECB itself is uncertain about inflation.

“In our assessment, the current inflation surge is primarily due to factors of a temporary nature, but these factors can be more sustainable than originally estimated, so over the next few months. Is expected to continue to have relatively high inflation, “Spain’s Decos added.