Christine Lagard has experienced a wide variety of events through her three-year tenure at the European Central Bank (E.C.B.). However, she will be in new territory now, as this will be the first time in 11 years that the European Central Bank has raised interest rates. This is also the biggest rate hike in 22 years. The half-point rate hike dispels the near decade-long status-quo of negative interest rates in bank deposits of -0.5%. Depositors of the E.C.B. will now not lose money (in nominal terms) for putting their funds in a bank.
This measure aims to stifle inflationary pressures as the political whirlwinds find their way throughout Europe. With Germany now being held hostage by weaponized Russian resources, and Italy facing increasing political uncertainty as PM Draghi resigned following a no-confidence vote, Lagarde aims to take measurable steps to quell legitimate fears of recession risk facing several major European powers.
In a statement, the ECB indicated that future meetings may center on further normalizing interest rates. “The frontloading today of the exit from negative interest rates allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions,” the ECB stated, avoiding language regarding direction on the size of future rate hikes.
While it will be impossible to predict the coming headwinds, Lagarde is certainly battening down the monetary hatches for a potential storm.
