ECB’s Lagarde says hasty rate hike wouldn’t solve inflation problem -RND

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FRANKFURT, Feb 11 (Reuters) – Raising the European Central Bank’s main interest rate now would not bring down record-high euro zone inflation and only hurt the economy, ECB President Christine Lagarde said in an interview published on Friday.

Lagarde sent bond markets into a tailspin last week by opening the door to the first ECB rate hike in more than a decade in the face of stubbornly high price pressures.

With money markets now pricing in a 50-basis-point increase in the ECB’s deposit rate by December, Lagarde cautioned that a hike would not address the high oil prices and supply snags that have boosted inflation.

“That would not solve any of the current problems,” she told German media network Redaktionsnetzwerk Deutschland (RND). “On the contrary: if we acted too hastily now, the recovery of our economies could be considerably weaker and jobs would be jeopardised.”

She insisted that the ECB would only withdraw its aggressive stimulus policy of negative interest rates gradually and when conditions allowed.

“Now we can adjust – calmly, step by step – our monetary policy instruments,” she said. “And when the economic data allow it, we will do it.”

Dutch central bank governor Klaas Knot, an outspoken policy hawk, predicted a 25 basis points hike in the fourth quarter and another in the first three months of 2023.

The U.S. Federal Reserve is expected to raise rates faster after the hottest inflation reading in nearly 40 years.

But the ECB’s chief economist Philip Lane, who makes policy proposals, has been more cautious, saying the current situation did not warrant significant tightening.

Inflation in the euro zone hit 5.1% last month and the European Commission said on Thursday it expected it to average 3.5% this year – well above the ECB’s 2% target.

The ECB said in December it would continue buying bonds to stimulate inflation at least until October and only raise rates after those purchases end.

But this guidance looks likely to change at its next policy meeting in March.

The ECB last hiked rates in 2011 in what is now widely considered a policy mistake in the middle of a supply shock and debt crisis.

Its rate on bank deposits is currently minus 0.5%.

(Reporting By Francesco Canepa; editing by John Stonestreet)

Photo – Christine Lagarde, President of the European Central Bank (ECB). EPA-EFE/Thomas Lohnes / POOL

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