The President of the European Central Bank (ECB), Christine Lagarde, caused movement on the financial markets again on Tuesday with statements about a tighter monetary policy course.

After she had promised an end to negative interest rates by the end of September at the beginning of the week, she followed up in an interview with Bloomberg TV in Davos on Tuesday: The deposit interest rate could then be zero or "slightly more", she explained.

This means that the ECB could also consider a larger rate hike of half a percentage point in the summer.

Lagarde's comments on Monday were interpreted to mean that she was planning to raise the deposit rate from minus 0.5 percent to minus 0.25 percent in July and then to zero percent by the end of September.

Christian Siedenbiedel

Editor in Business.

  • Follow I follow

The statements moved the markets.

The euro rose to a four-week high of $1.0735 on Tuesday.

On the stock market, bank stocks were among the winners, and the prices of many real estate stocks fell.

Banks are often seen by investors as beneficiaries of rising interest rates, while real estate companies tend to suffer as a result.

Lagarde defended in the interview that the ECB wanted to proceed "gradually" with the interest rate hikes, i.e. step by step, not with very strong interest rate hikes right at the beginning.

The situation is different than in the United States.

If an “unanchoring” of inflation expectations were to be observed, i.e. if they were to move further away from the ECB’s inflation target completely unchecked, or even if there were strong demand pressure on inflation, a different approach could be necessary – see that but not in the euro area.

Inflation is driven by bottlenecks in supply.

Therefore, the ECB is moving towards normalizing monetary policy, but not panicking.

Eurozone inflation hit a record 7.4 percent in April, more than three times the ECB's target.

The fact that the ECB President anticipated the coming meetings of the ECB Council with a blog post on Monday was viewed by some observers as unusual.

In any case, Commerzbank economist Michael Schubert spoke of a “very clear” signal.

Former ECB President Mario Draghi was criticized for sometimes publicly announcing decisions and leaving the Governing Council with little choice but to approve the decisions if they did not want to risk major irritations in the financial markets.

In the Bloomberg interview, when asked for whom she made these statements, Lagarde at least did not rule out that the members of the Governing Council of the ECB could also have been meant.

Most recently, ECB Governing Council members had commented publicly on the question

When does the ECB intend to raise interest rates?

The Dutch council member Klaas Knot, for example, had raised interest rates by 0.5 instead of 0.25 percent in July as a first step.

The head of the French central bank, François Villeroy de Galhau, has now said on Davos Bloomberg TV that an increase of 0.5 percentage points is currently not a consensus in the Governing Council.

Lagarde said in an interview that she was concerned with the differences in inflation in the various euro countries.

They are large, for example between the Baltic countries, of which Estonia has arrived at 19 percent inflation, and others like France with a "much lower level".

The French inflation rate was 5.4 percent, probably also due to political interventions before the election.

This was the lowest value together with Malta.

Lagarde was very reluctant to comment on speculation that the exchange rate between the euro and the dollar had been of greater concern to the ECB recently.

She didn't want to say anything about a possible fear of euro-dollar parity, i.e. a one-to-one exchange rate.

Otherwise, she only remarked that the development of the exchange rate is being followed because it has an impact on inflation through the prices for imports of energy, for example.

Keywords: