Lagarde Says ECB Bond Buys Will Likely End Early in Third Quarter

(Bloomberg) -- The European Central Bank’s net asset purchases are likely to end in July or August with interest rates then rising later in the year, President Christine Lagarde said.

The end of bond buying “is very likely to happen in the course of the third quarter with a high probability that it will be early in the quarter if numbers continue to be the way we have seen them,” Lagarde told CNBC in an interview from Washington on Friday. “But we have to be data dependent and we will be sequential.”

“If the situation continues as predicated at the moment there is a strong likelihood that rates will be hiked before the end of the year,” she said. “How much, how many times, remains to be seen.”

Faced with record inflation rates, Lagarde put the central bank on an accelerated stimulus exit path in February and there’s been increasing speculation about when and how fast rates will rise. Ending net asset purchases is a prerequisite to hiking rates.

Investors have been betting that the deposit rate, which is currently at -0.5% and has been negative since 2014, will rise above zero this year. Money markets are now pricing back-to-back quarter-point hikes in July and September. 

ECB Governing Council member Pierre Wunsch said earlier this week that the central bank may lift policy rates above zero before the end of the year, even though the war in Ukraine presents a significant risk to the economy.

A hike would see the ECB join the Federal Reserve and the Bank of England in unwinding stimulus measures. Large-scale asset purchases have been running with few interruptions for more than seven years.

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