Christine Lagarde says EU inflation has passed a ‘hump’ and rate hike in 2022 ‘very unlikely’

The President of the European Central Bank said it was unlikely that euro zone interest rates would rise next year, calling the current rise in inflation a “hump”, but added that the ECB would act quickly. quickly if necessary to stem the upward momentum.

Despite eurozone inflation reaching record highs 4.9% in November, well above the ECB’s 2% target, Christine Lagarde said it has likely peaked and will fall next year.

“I see an inflation profile that looks like a hump. . . and a hump will eventually diminish,” she said at a Reuters virtual event. Lagarde also repeated his assertion that the ECB is “very unlikely” to raise rates next year.

Her comment contrasts with a policy changes at the U.S. Federal Reserve, chair Jay Powell this week said it will accelerate the withdrawal of bond purchases to combat soaring inflation, fueling expectations that they will likely raise interest rates in the near future. next year.

Lagarde said it was too early to say what impact the Omicron coronavirus variant would have on Europe’s recent economic recovery and on inflation. “We have to wait for the scientists to tell us [more about the variant],” she speaks.

“But equally, we need to make it very clear that we are ready [to act] in both directions,” she added. With inflation on track to stay above 2% for the next few years, meeting the conditions set by the ECB for interest rates to rise, she said the bank “will not hesitate to act”.

Some economists say the new variation could mean inflation will continue to be higher for longer as new restrictions disrupt trade and shift demand from services to goods, depressing The added importance of bottlenecks in the supply chain has pushed up world prices.

However, Lagarde said that 55 to 60 percent of recent inflation was due to high energy prices and “there is reason to believe that by the end of 2022, it will be significantly reduced”.

With growing uncertainty about the economic impact of the pandemic, Lagarde also said central bank policymakers are unlikely to make any long-term policy commitments as they face each other in two weeks.

“There are ways to provide clarity without making long-term commitments, and I would make the mistake of not making long-term commitments because there is so much uncertainty,” says Lagarde.

The recent surge in Covid-19 cases and the spread of the Omicron variant have made some ECB policymakers reluctant to commit to long-term stimulus when they meet on May 16. 12, especially after inflation consistently exceeded their forecasts this year.

Some conservative “hawks” at the ECB said they could end all asset purchases next year, much sooner than many investors expect.

Klaas Knot, the head of the Dutch central bank, said on Friday that the ECB could raise interest rates in 2023 if inflation remains higher than expected next year.

Lagarde said new bond purchases in its flagship 1.85 billion euro emergency bond-buying program are expected to close in March, but she added that the ECB has the tools in place. other tools to “ensure conditions remain favorable” after that point.

She said the ECB could still “act in the market” by reinvesting the proceeds from maturing bonds and by continuing to make new purchases under its traditional asset purchase program, which some lenders do. Investment is expected to be expanded from the current rate of 20 billion euros a month.

Unemployment in the Eurozone, close to pre-pandemic levels after falling to 7.3% in October, is higher than in the US and there are fewer signs of labor shortages or widespread abandonment of the workforce. Europe, Lagarde said.

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