Lagarde continues with monetary tightening

European economic data which turned out to be positive compared to expectations had raised hopes of an easing of monetary tightening. But that will not be the case, judging by what the president of the ECB, Christine Lagarde, said yesterday to the European Parliament. Lagarde not only confirmed that in March there will be a new rate hike of 50 basis points, but explained that the ECB is determined to increase the cost of money at a constant pace to bring inflation back to 2 percent. In short, the very resilience of the economy could encourage the ECB to continue the monetary tightening. The markets have bet on a final rate of 3.5%, but some operators are already refining their forecasts. “We believe there are upside risks – says investment group Algebris – as our models show that core inflation in the Eurozone will remain stable at around 5 percent until mid-summer. In this scenario we do not believe that the ECB can afford to slow down and could signal further increases beyond this date”.