FRANKFURT (Reuters) – The European Central Bank is highly unlikely to hike interest rates next year as inflation remains too low, European Central Bank President Christine Lagarde said on Wednesday, pushing back bets on market for a movement from next October.
“In our forward guidance on interest rates, we have clearly articulated the three conditions that must be met before rates start to rise,” she said at an event in Lisbon.
“Despite the current inflationary surge, the medium-term inflation outlook remains subdued, and therefore these three conditions are highly unlikely to be met next year.”
Lagarde’s comments come after she failed last week to push back market expectations and investors even briefly assessed two full moves next year before pulling out to anticipate a hike next October.
“Market interest rates have increased in recent weeks, mainly due to greater market uncertainty over inflation prospects, spillovers from overseas on key rate expectations in the euro area and some questions on the calibration of asset purchases in a post-pandemic context. world, ”Lagarde said.
Lagarde also pushed back the recent rate hike, warning that the ECB would continue to use emergency asset purchases to keep borrowing costs low.
“An undue tightening of financing conditions is undesirable at a time when purchasing power is already squeezed by higher energy and fuel bills, and this would represent an unwarranted headwind for the recovery,” said she declared.
The ECB and financial investors have disagreed over the likely path of inflation, the most important measure guiding policy.
As the ECB sees price growth rise from levels above 4% now to its target of 2% next year, investors are betting on more lasting price pressures that would trigger political tightening.
The problem is, inflation uncertainty is unusually high and even Lagarde admitted last week that the current peak will be higher and longer than previously thought just a few weeks ago.
(Report by Balazs Koranyi Additional report by Sergio Goncalves in Lisbon, edited by Francesco Canepa and Catherine Evans)