MNI STATE OF PLAY:ECB's Lagarde Doesn't Rule Out '22 Rate Rise

European Central Bank president Christine Lagarde refused to rule out raising interest rates in 2022 on Thursday and said risks to inflation were tilted to the upside, particularly in the near term, but she stressed that the Governing Council is committed to the triple lock of conditions that must be met before any hike.

March’s meeting will be the appropriate time to analyse economic data and inflation, Lagarde said, adding that there was unanimous concern among governors that rising prices, particularly energy costs, are eating into household income.

Thursday’s move not to adjust policy was a consensus decision, but the ECB will not be complacent if it needs to act, she said.

March’s Governing Council will confirm the end of the net purchase phase of the ECB’s pandemic emergency purchase programme, with members also able to assess the appropriate pace of bond-buying under its asset purchase programme.

In its monetary policy decision, the ECB removed a reference to adjusting its policy tools “in either direction” that was included in December’s statement.

Inflation has risen more and for longer than anticipated, largely due to a surge in energy prices, Lagarde said, with risks to the outlook now tilted to the upside. Survey data suggests the ECB is getting closer to its 2% target on a sustainable basis, she added.

But she cautioned against “assuming too much in terms of the immediacy of hikes,” despite markets pricing in at least two rate rises this year.

Under its triple lock, to raise rates, the ECB says inflation must be seen to be reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon. Underlying inflation must also be consistent with inflation stabilising at 2% over the medium term.