ECB’s Lagarde: In a position to exit negative rates by end of Q3

“We are likely to be in a position to exit negative rates by the end of Q3,” European Central Banks (ECB) President Christine Lagarde said on Monday.

Further comments

I expect APP to end very early in Q3.

This would allow a rate hike to take place in July, in line with forward guidance.

If inflation stabilises around 2% in medium-term, a progressive further normalisation towards neutral rate will be appropriate.

But the pace and overall scale of the adjustment cannot be determined ex ante.

Situation currently faced is complicated by presence of negative supply shocks.

There are arguments for for gradualism, optionality and flexibility when adjusting monetary policy.

We have one important guidepost for policy, that is to deliver 2% inflation over medium-term.

ECB will take whatever steps are needed to do so.

It is appropriate for policy to return to more normal settings rather than those aimed at raising inflation from very low levels.

It is premature at this stage to discuss how the ECB’s balance sheet policies.

The euro area is clearly not facing a typical situation of excess aggregate demand or economic overheating.

We can design and deploy new instruments to secure monetary policy transmission as we move along the path of policy normalisation.

Market reaction

The shared currency caught a 20-pips bid wave on Lagarde’s comments to hit fresh daily highs at 1.0635.

At the time of writing, EUR/USD is trading at 1.0621, still up 0.59% on the day.

About the Author

You may also like these