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ECB’s Lagarde sees rate at zero or slightly above by September


© Reuters. FILE PHOTO: President of European Central Bank Christine Lagarde addresses a news conference following the meeting of the Governing Council’s monetary in Frankfurt, Germany March 10, 2022. Daniel Roland/Pool via REUTERS

FRANKFURT (Reuters) -European Central Bank President Christine Lagarde said on Tuesday she saw the ECB’s deposit rate at zero or “slightly above” by the end of September, implying an increase of at least 50 basis points from its current level.

Her comments kept speculation alive about bigger ECB rate hikes this summer to fight record-high inflation, partly the result of rising energy prices due to Russia’s invasion of Ukraine as well as large public-sector stimulus during the pandemic.

“We’re moving very likely into positive territory at the end of the third quarter,” Lagarde said in an interview with Bloomberg TV.

Asked to clarify that comment, she added: “When you’re out of negative (rates) you can be at zero, you can be slightly above zero. This is something that we will determine on the basis of our projections and … forward guidance.”

Investors have been speculating about whether the ECB will be raising rates in increments of 25 or 50 basis points since Dutch governor Klaas Knot floated the latter option last week.

France’s central bank governor Francois Villeroy de Galhau weighed in on the debate on Tuesday, saying “the 50-basis-point hike doesn’t belong to the consensus”.

Lagarde had said on Monday the ECB would be out of negative rates by the end of September, which many investors took to mean at zero via two hikes worth 25 basis points each.

This was already seen as a remarkable turnaround for a central bank that hasn’t raised rates for over a decade, has charged banks on their idle cash for eight years and had until recently been all but ruling out rate hikes this year.

Money markets are now pricing in some 63 basis points worth of hikes by the ECB’s Sept. 14 meeting and 108 basis points by the end of the year.


Euro zone inflation has for months been coming in much higher than the ECB expected, surging to an all-time high of 7.4% in April and forcing the central bank to follow global peers such as the Federal Reserve on the path to higher rates.

Villeroy said the ECB would bring price growth back to its 2% target by 2024, including by going above the neutral rate – an unobservable level of interest which does not stimulate nor stymie the economy – if needed.

But Lagarde insisted the ECB would move only gradually because inflation was driven by supply – a reference to more expensive fuel due to the Ukraine war and to COVID-related restrictions in China – rather than soaring demand.

“I don’t think we are in a situation of surging demand at the moment,” Lagarde said. “It’s definitely an inflation that is driven by the supply side of the economy.”

ECB’s Lagarde sees rate at zero or slightly above by September

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