The European Central Bank (ECB) is unlikely to raise interest rates in 2022 as inflation falls, ECB chief Christine Lagarde said today, refuting market bets on a rate hike next October.
“For the future direction of interest rates, we have clearly stated the three conditions that must be met in order for interest rates to start rising,” Lagarde said, adding: “These three conditions are very unlikely to be met next year.”
Lagarde’s remarks came after she failed last week to defy market expectations. Investors even temporarily discounted two interest rate hikes next year, and now forecast an interest rate hike in October 2022.
“Market rates,” he said, “have risen in recent weeks, mainly as a result of growing market uncertainty about inflation prospects, the external impact on eurozone interest rate policy expectations and some questions about regulating bond markets after the pandemic “.
Lagarde also rebuffed the recent rise in bond yields, warning that the ECB would continue to buy bonds to keep yields low.
“An unwarranted tightening of financial conditions is not desirable at a time when purchasing power is already being squeezed by higher energy and fuel bills and would be an unwarranted headwind for recovery,” Lagarde said.
The ECB and investors disagree on the possible course of inflation, which is the most important indicator for monetary policy. While the central bank predicts that price increases will fall from levels above 4% today below the 2% target next year, investors are betting on longer-term inflationary pressures that will tighten policy.
The problem is that inflation uncertainty is unusually high, and Lagarde herself admitted last week that today’s eruption would last longer than previously thought a few weeks ago.
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