The guard

  • The ECB is not in panic mode
  • We are clearly now at a turning point
  • ECB approach to policy ‘perfectly on time’, not behind the curve
  • We remain data dependent, closely monitoring wages and inflation expectations
  • ECB turns its back on negative interest rates and heads into positive territory by the end of Q3
  • “Out of negative rates” could mean at zero or above zero
  • The recovery of activity in services as summer approaches will counteract the factors weighing on the economy
  • Progression is the way to go if inflation expectations are well anchored
  • If there is an increase in demand, there is no need to be so gradual
  • But don’t think we are in a situation where a surge in demand is present

She mainly hammers the points she raised yesterday. It is clear that the ECB is collectively heading towards policy tightening, but against a backdrop of a weaker economy, it will remain to be seen how far it can raise rates, especially if it is only successful at third trimester. Lagarde manages expectations as such by defining what exactly “excluding negative rates” could mean.