European Central Bank President Christine Lagarde on Thursday declined to rule out a hike in interest rates this year as costs of living in the eurozone are rising faster than expected. Lagarde said the March and June meetings of the ECB’s governing council will assess an updated analysis that takes into view the larger than expected inflation increases reported during recent weeks.
“The situation has indeed changed,” Lagarde said during the ECB’s press conference, referring to the marked increases in costs of living in the eurozone. “We see prices continuing to stay high for a few months. The medium term numbers will be more certain at the March meeting.”
She said that the ECB is “very attentive” to what is happening. Consumer prices rose at a record rate of 5.1 percent in January, Eurostat reported on Monday.
Inflation risk now “tilted to the upside”
The March and June meetings of the ECB will be “critically important to determine whether our forward guidance is accurate,” Lagarde said.
Inflation risks are now “tilted to the upside,” she said, adding that there was “unanimous concern” about inflation among policy makers.
Her comments indicated that the ECB’s governing council may consider an adjustment of its net asset purchasing programme, known as APP, as early as 10 March, when it meets, or in June. The ECB already announced that it will end its pandemic emergency purchase programme, or PEPP, in March. The ECB has used these programmes to inject significant amounts into the economy in order to support growth.
“We will not be complacent”
Once these programmes have ended the ECB will have the room to raise the eurozone benchmark interest rates in order to bring inflation back down towards its target of “below, but close to, 2 percent.”
“We will not hike rates until we have completed net asset purchases. We will determine in March what is the assessment… and then we will apply this to the net asset purchasing programme for the rest of 2022,” Lagarde said.
“We will not be complacent but we will not be rushed into the process. We will be gradual in whatever we do,” she said.
In financial markets, the euro rose immediately after following Lagarde’s hawkish comments, reaching a two-week high of 1.139 dollars.
Asked about the quality of the ECB’s own inflation forecasts, Lagarde said that “providing forecasts, elaborating projections, is a difficult exercise.”