ECB officials join Christine Lagarde on rate hike path

European Central Bank colleagues have been lining up to support President Christine Lagarde’s plan to exit negative interest rate policy by the end of the third quarter, although some stressed that more aggressive action cannot be ruled out.

After initial alarming comments from policy officials earlier this week that the ECB chief’s signal for two quarter-point rate hikes in July and September appeared to rule out any major moves, several policymakers declared their support for their roadmap.

Among them were two of Ms. Lagarde’s fellow board members who advocated a timeline that would also include an end to bond purchases in the weeks following the June 9 decision.

Vice President Luis de Guindos told Bloomberg yesterday the timetable was “very reasonable”, while chief economist Philip Lane described it as “clear” and “robust policy”. Meanwhile, Dutch central bank governor Klaas Knot, a veteran hawk, declared that “I fully support everything that is on the blog,” Ms Lagarde wrote on Monday.

He later added that a 50 basis point rate hike in July to immediate zero was “clearly not off the table” and insisted the option was compatible with their plan. Such a tightening approach would reflect the heightened anti-inflation aggression the US Federal Reserve embraced this month when it hiked by that amount.

The ECB has taken longer to embrace tightening than other global banks, claiming that rising consumer prices are being driven largely by supply shocks, such as the rise in energy costs following Russia’s invasion of Ukraine. But surprisingly rapid inflation of nearly four times the 2 percent target has prompted officials to promise action.

The flurry of comments provided further evidence of how far the ECB discussion has progressed. Even normally more dovish politicians like Olli Rehn are targeting a rate hike in July, and the debate is now focused on speed, quantity and even how much the cost of borrowing should ultimately rise.

Ms Lagarde herself didn’t seem to rule out a third-quarter deposit rate hike above zero, telling Bloomberg in Davos that “if you’re out of negative territory you can be at zero, you can be slightly above zero”.