ECB: an interest rate hike in 2022 is “very unlikely”

The president of Banco Central Europeo (ECB), Christine Lagarde, announced that it was “highly unlikely” that the institution would raise its interest rates in 2022, at a time when other large central banks are preparing to tighten monetary policy.

Despite the current upturn in inflation in the euro area, the “medium-term inflation outlook remains modest”, so “the conditions for a rise in interest rates will not be met” next year, the official explained in a speech. in Lisbon.

At its last meeting, held at the end of October, the ECB kept its main interest rate at zero and all its measures to support the economy despite the strong increase in inflation in the euro area.

“An undue tightening of financing conditions is undesirable at a time when purchasing power is already being eroded by rising energy and fuel bills”, and would represent an “undesirable headwind for recovery” Lagarde explained.

In this way, it has pushed back market expectations of a first interest rate hike in December 2022.

The increase in inflation in the euro area is stronger than expected, reaching 4.1% year-on-year in September, the fastest rate of price increase in more than 13 years. This has put pressure on the ECB to respond.

But for now, the bank expects inflation to fall again in 2022 and only reach 1.5% in 2023, still far from its 2% target.

However, the inflation forecast for the following year and the year after would have to be within its target limits for the ECB to change interest rates.

The market’s attention will focus this Wednesday on the United States Federal Reserve (Fed), which brings together its monetary policy committee.

While the ECB chooses to wait and see how inflation plays out, preferring to continue supporting the economy as the recovery falters, the Fed could instead signal that it intends to raise its interest rates earlier than expected.

And on Thursday, the Bank of England could raise its interest rate for the first time since August 2018.

The ECB, for its part, sees good reason to look back on its young history. Ten years ago, its previous president, Jean-Claude Trichet, raised interest rates too early, just as the crisis was about to erupt, a mistake that was quickly corrected by his successor, Mario Draghi, but which remained in the annals of the institution.