The countdown begins. Christine Lagarde, president of the European Central Bank (ECB), wrote yesterday on her blog that the institution expects to finalize its bond purchase program in early July, which will imply that "this will allow us to raise interest rates at our meeting of July". This is what the market has been expecting for weeks and about which there is no room for doubt.
But Lagarde, at other times very reserved regarding the next steps of monetary policy – whose decisions are adopted in the governing council – added important new details. "Based on current prospects, we may very well be in a position to exit negative interest rates at the end of the third quarter," the banker said. The ECB's deposit rates to banks are at -0.5%, which means that, predictably, there will be a rise of 25 points in June and another 25 in September.
Lagarde's comments caused a strong appreciation of the euro, which went above 1.97 euros, and of the stock markets. In the case of the Ibex, the rise was 1.7% to over 8,600 points, with a clear role played by banks. The rate hike benefits the recovery of its financial income. Banc Sabadell soared 6%, while Santander and CaixaBank advanced almost 4% and Bankinter and BBVA capped gains at 3%.
Lagarde took advantage of her blog to recall the roadmap, in accordance with the ECB's mandate. “If we see that inflation stabilizes at 2% in the medium term, an additional and progressive normalization of interest rates towards the neutral rate will be appropriate”, close to that 2%. Only in the event of a demand-driven overheating of the economy would it make sense, according to Lagarde, for rates to rise above that level. Graduation, optionality and flexibility will lead the way for the ECB.
