Lagarde says ECB is at a turning point on rates
DAVOS: European Central Bank (ECB) president Christine Lagarde says the eurozone will leave the era of negative interest rates in the coming months as the currency bloc has reached a “turning point” in monetary policy.
In an exclusive Bloomberg Television interview at the World Economic Forum in Davos, Lagarde said that the ECB will move out of negative rates by the end of the third quarter, but is “not in a panic mode.” She added that a recession isn’t the central bank’s baseline scenario for the eurozone.
The war in Ukraine is hanging over the gathering in the Swiss Alps as global leaders grapple with Russian tensions, inflation, food shortages and climate change.
Speeches by Spanish Prime Minister Pedro Sanchez, European Commission President Ursula von der Leyen and North Atlantic Treaty Organisation (NATO) secretary general Jens Stoltenberg were among highlights on the second day of the event, which returned after a two-year hiatus due to the pandemic.
Lagarde rejected the idea that the euro area is heading for a recession for the time being, while acknowledging the need to be “very attentive” to economic developments.
“We don’t have that as a baseline,” she said. “We are not in a panic mode. We are now at a stage where there is every certainty that we will stop net assets purchases very early in July, deciding so in June, which will then clear the way for rate hikes that will come reasonably shortly after that.”
Lagarde said she decided to set out the future path of monetary policy in a blog post on Monday, in part to address “expectations that were not necessarily founded.”
“We are clearly now at a turning point and I thought it was appropriate at this point to explain what the journey is, what the direction of travel is, what the destination is in the relatively short term and what is our aim point as well,” Lagarde said in the interview with Bloomberg.
“I thought it was a good time given the
combination of volatility that was out there, expectations that were not necessarily founded and the strong convergence that arose from the Governing Council due to the multiple positions as expressed during the last few days,” she added.
The world’s seven-biggest polluters will have to spend US$67 trillion (RM294 trillion) by the end of this decade to stay on the path of achieving climate neutrality mid-century, according to a report from Polish Economic
Institute that’s due to be presented was Davos yesterday.
The economies – China, the United States, the European Union, Brazil, India, Russia and Japan – are responsible for 70% of global greenhouse gas emissions. Their efforts are key for the world to meet the goals of the 2015 Paris Agreement to limit warming to “well below” two degrees Celsius above pre-industrial levels.
With current investment pledges to green their economies, the European Union will reach climate neutrality in 2056, followed by the United States four years later and China only in 2071 – 11 years later than its target, according to the report. Russia won’t be able to reach climate neutrality until 2086.
Another key development was UBS Group AG CEO Ralph Hamers’ assertion that he expects to see more clarity in global markets within the next three months as they digest the fallout from recent geopolitical events.
Wealthy clients, he said, aren’t panicking. They are staying invested, though not necessarily putting new money into the market.
Richard Edelman, chief executive officer of public-relations firm Edelman, said he was a fan of this year’s iteration of Davos, saying its smaller scale was provoking conversations.
“Davos has been actually great because it is smaller, CEOS are really looking to talk,” Edelman said in a Bloomberg Television interview.