“We have every reason not to react as quickly and abruptly as we might imagine the Fed would.”Lagarde said. “But we have started to respond and of course we are prepared to respond with monetary policy if the numbers, data and facts require it.”
The ECB has come under pressure to act after inflation in the currency bloc hit a record 5% last month. However, while officials have agreed to scale back stimulus put in place during the pandemic, they say raising interest rates this year is highly unlikely as the current bout of inflation is driven by supply shocks and rising interest rates. energy costs, and should gradually decrease.
Under current conditions and inflation forecasts, “an increase in interest rates is not expected in 2022”, said Juan Pablo Hernández de Cos, a member of the Governing Council of the ECB, in an interview with the Spanish television network TVE.
Members of the ECB’s Governing Council meeting in December warned that higher inflation for longer “could not be ruled out,” according to a meeting report.. Some officials also argued that they should not give the impression that they are committed to buying bonds beyond this year.
The Fed, for its part, hastened the withdrawal of stimulus, signaling that it will start raising rates from March after consumer price growth reached 7% in December. This figure is the highest in almost four decades and is raising fears of repercussions due to the rising cost of living.
Financial markets are testing the ECB’s resolve to wait out the price rise, betting on a rate hike in September. Benchmark German bond yields rose above zero on Wednesday for the first time since before the pandemic. Lagarde did not seem concerned when asked about it.
The rise in yields means “the fundamentals of the economy are recovering,” he said. “It means there is confidence in growth and under such conditions rates will gradually increase.”
Source From: Ambito
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