While some members of the European Central Bank’s Governing Council are already talking about possible interest rate hikes, ECB President Christine Lagarde is speaking much more cautiously. The result is a weakening euro and a strengthening dollar.
“If inflation stays high, if the labour market stays strong, and if we see that the economy is picking up, then the direction is clear: we can intervene earlier than we originally anticipated,” Martins Kazaks, governor of Latvia’s central bank and a member of the European Central Bank’s governing council, told Reuters in an interview.
He signalled an early end to the quantitative easing that the ECB has been using to support the eurozone economy. He is thus the second member of the ECB’s wider leadership (after the Dutchman Klaas Knot) to speak of an end to the ECB’s extremely loose monetary policy.
But ECB President Christine Lagarde is making the opposite comments. According to her, the ECB has signals that inflation may soon stabilise at the 2% target. The contradictory statements of the ECB executives were reflected in the euro market, which lost a quarter of a percent against the dollar. The dollar, on the other hand, gained 0.14 percent against a basket of currencies and is likely to continue to strengthen.