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ECB negative interest rates end in September

23 MEI 2022
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Taxas de Juro Destaque Notícia Homepage Inflação BCE União Europeia
The European Central Bank (ECB) expects to raise the deposit rate to positive values by the end of the third quarter, advancing that the euro zone will no longer have negative interest rates in September.
ECB negative interest rates end in September
The forecast is from ECB President Christine Lagarde, according to a text published on the monetary authority's website, in which the French economist also predicts a larger increase in the deposit rate if inflation stabilizes at 2%.

According to Lagarde, at a time when interest rates are at historic lows, debt purchases under the ECB's regular asset-purchase program are expected to end "at the beginning of the third quarter," which will make "a rise in interest rates at the July meeting" possible. 

"Given the current outlook, we should be in a position to exit negative interest rates by the end of the third quarter," it reads.

At the moment, the main refinancing rate stands at 0%, while the marginal lending rate is at 0.25%. However, the deposit facility rate is currently fixed at -0.5%, which depicts that banks pay for their money with money deposited at the ECB. 

This deposit facility rate has been at negative values for almost eight years as a way to get banks not to keep their money and instead to finance businesses and households.

However, the scenario has changed and monetary policy has "changed significantly" from the pre-pandemic environment. The year-on-year inflation rate accelerated to 7.4% in the euro zone in April (down 0.1 percentage points from March). 

In the European Union, inflation rose to 8.1%. At a time when the risk of high prices is real, aggravated mainly by escalating energy prices and disruptions in supply chains, price developments justify the move to the ECB. 

In this sense, Lagarde concludes, "The tools we were implementing at that time, aimed at fighting persistent very low inflation, are not the most appropriate today."

The ECB ended the Pandemic Emergency Program in March, however, the aforementioned APP, which is the central bank's regular asset purchase program, is still ongoing. 

Monthly net purchases under the APP expanded to 40 billion euros in April, as announced at the last ECB meeting. In May, purchases are expected to total 30 billion euros, and 20 billion euros in June.

Analysts anticipate an acceleration of the end of the debt purchase program and a rise in interest rates, something that the ECB has also signaled. This Monday's article by the ECB president highlights that the central bank may act more forcefully.

"If we see that inflation stabilizes at 2 percent in the medium term, a progressive normalization of interest rates toward the neutral rate would be appropriate." Nevertheless, Lagarde, says that "normalization" of monetary policy "must be carefully calibrated" against the conditions that European economies are going through. This is because the ECB is "sensitive to step-by-step movements, observing the effects on the economy and on the outlook for inflation, while interest rates are rising" in a context of "supply shocks" and constraints still caused by the pandemic and the war in Ukraine. "But we are also not facing a direct situation of excess aggregate demand," Lagarde writes.

"The next phase of normalization will have to be guided by the evolution of the medium-term inflation outlook," stressed the ECB leader, explaining that "the pace and size of adjustments cannot be determined ex ante."
Onderwerpen
Taxas de Juro Destaque Notícia Homepage Inflação BCE União Europeia
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