ECB on the verge of tightening monetary policy

German Central Bank Governor Joachim Nagel suggested that the European Central Bank could raise interest rates this year, as inflation is likely to remain high for longer than expected.

Nagel, who headed the Bundesbank in January, also said that if the inflation picture does not change by March, Germany will advocate the normalization of monetary policy. And the first step to this is to stop net bond purchases during 2022. 

The head of the European regulator itself, Christine Lagarde, also said last week that inflation in the eurozone will remain at an elevated level for longer than the ECB expected. Moreover, Lagarde said that the regulator can no longer rule out the scenario of a rate hike in 2022. Such a «hawkish» bias, following December comments that the ECB is unlikely to raise rates in the new year, had an immediate impact on European debt yields.

At the same time, Lagarde tried to reassure investors, assuring that any changes in the ECB's policy would be gradual. 

Experts believe that the first ECB rate hike is likely to occur in the fourth quarter of the year, and the next round will take place in early 2023. Inflation in the eurozone is expected to be around 4% throughout the year. The current inflation rate is 5.1%.