Link Securities | According to elEconomista.es on Tuesday, the president of the European Central Bank (ECB), Christine Lagarde, said in her opening speech at the central bank forum in Sintra (Portugal) that the ECB will probably not be able to declare the end of its historic cycle of interest rate hikes any time soon. In that sense, Lagarde said that it is unlikely that in the near future the central bank will be able to state with full confidence that maximum rates have been reached. That is why she said that, unless there is a substantial change in the outlook, they will continue to raise rates in July.
The ECB president also said that they need to communicate clearly that they will stay at these levels for as long as necessary as this will ensure that raising rates does not raise expectations of too rapid a change in policy and allow the full impact of their previous actions to materialise. Moreover, she said that the first effects of monetary policy tightening are becoming visible, especially in the manufacturing and construction sectors, which are more sensitive to rate changes. At the same time, the recovery in wages will continue to put upward pressure on underlying prices.
Assessment: Christine Lagarde confirmed in her speech in Sintra that the ECB will continue to raise rates at the next meetings of its Governing Council and this despite the damage it may cause to the Eurozone economy. However, and despite her categorical statements, while we take the 25 basis point hike in July as a certainty, we have doubts that in September, unless core inflation remains stable at current high levels and the region’s economy proves resilient, the ECB will raise rates again. Markets initially reacted with little change as everything Lagarde said was already known to investors.
