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  • By The Financial District

ECB Likely To Get Out Of Negative Rates By September

The European Central Bank (ECB) is likely to lift its deposit rate out of negative territory by the end of September and could raise it further if it sees inflation stabilizing at 2%, ECB President Christine Lagarde said, Francesco Canepa reported for Reuters.


Photo Insert: Lagarde opened the door to further rate hikes towards what economists call the neutral level - an unobservable rate that brings economic output into line with its potential - or even above it.



She was accelerating an already sharp policy turnaround, which has seen her go from all but ruling out rate hikes this year to now penciling in several in the face of record-high inflation in the eurozone.


"Based on the current outlook, we are likely to be in a position to exit negative interest rates by the end of the third quarter," Lagarde said in a blog post published on the ECB's website.



The ECB's deposit rate is currently -0.5%, meaning banks are charged to park cash at the central bank and has been below zero since 2014 as the central bank fought too-low inflation.


But prices have been soaring in recent months as the price of fuel jumped due to factors including Russia's invasion of Ukraine and spilled over onto other goods. Headline inflation in the eurozone hit an all-time high of 7.4% in April and even measures that strip out food and energy far exceeded the ECB's 2% target.


All the news: Business man in suit and tie smiling and reading a newspaper near the financial district.

Lagarde opened the door to further rate hikes towards what economists call the neutral level - an unobservable rate that brings economic output into line with its potential - or even above it.


"If we see inflation stabilizing at 2% over the medium term, a progressive further normalization of interest rates towards the neutral rate will be appropriate," Lagarde added.


Banking & finance: Business man in suit and tie working on his laptop and holding his mobile phone in the office located in the financial district.

"If the euro area economy were overheating as a result of a positive demand shock, it would make sense for policy rates to be raised sequentially above the neutral rate," she said.



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