ECB chief Lagarde says the eurozone is 'at a turning point' on interest rates, sending the euro higher against the dollar
- ECB President Christine Lagarde says the eurozone is at a "turning point" on interest rates.
- She stressed however that taking the eurozone out of an environment of negative interest rates won't be rushed.
European Central Bank President Christine Lagarde said on Tuesday the central bank is "at a turning point" with its monetary policy, but stressed there was no need for it to rush to raise rates or withdraw economic support. This sent the euro to one-month highs against the dollar.
The bloc has been particularly hard-hit by steep rises in the regional price of key fuels such as natural gas and coal, which have soared by 140% and 21% so far this year, respectively, as it seeks to wean itself off Russian energy imports.
"We have been going through eight years of negative interest rates, special accommodation and we are clearly now at a turning point," Lagarde said in an interview Tuesday with Bloomberg Television at the World Economic Forum.
"We are not in a panic mode," she said. "We are now at a stage where there is every certainty that we will stop net asset purchases very early in July — deciding so in June — to clear the way for a rate hike that will come reasonably shortly after that," she added.
Following Lagarde's comments, the euro rallied broadly, cutting earlier losses against the dollar and rising to a new one-month high against the greenback. It was last up 0.3% on the day at $1.07176, having gained 3% in the last week as expectations have grown for the ECB to act to tackle inflation.
Eurozone rates have been below 0 since 2014 and the ECB hasn't raised them in well over a decade.
Lagarde already signaled the central bank's intentions in a Monday blogpost in which she said the time had come for the ECB to start normalizing monetary policy. In April, inflation hit 7.5%, up from 5.9% in February. The latest figure is almost four times the ECB's target of 2%.
"Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter," she said in the post.
With the ECB's deposit rate currently at -0.5%, banks are charged a fee to hold their reserves at central banks. The move is aimed to bolster economic growth by incentivizing banks to lend and consumers to spend with borrowed funds at very low rates.
As the world has bounced back from the pandemic and war in Ukraine has sent the prices of key raw materials spiraling, central banks everywhere are rushing to contain inflation before it damages hard-won economic growth. The Federal Reserve is widely tipped to raise US interest rates to at least 2.5% by the end of this year, from 1% right now.
US inflation currently stands at 8.3%, while eurozone inflation is at 7.4% and many economists have said the Fed has been too slow to curb inflation.
But Lagarde said this was not the case for the ECB "We are in a situation that is vastly different from the United States and we are actually perfectly on time and not behind the curve," she said in Monday's blogpost.