By Francesco Canepa

FRANKFURT, (Reuters) – The European Central Bank may end its stimulus program earlier than expected but it’s unlikely that it will raise its main rate in July like investors expect. Martins Kazaks, ECB policymaker told Reuters.

After Christine Lagarde, ECB President on Thursday openly acknowledged rising inflation risks and opened the doors to a rate increase, investors have placed their money on this bank’s first rate rise in over ten years.

Kazaks (the Latvian central bank governor) pushed back against any market bets regarding a July move, as this would imply a complete winding up, or “tapering,” the ECB’s bond purchases.

Kazaks explained in an interview, “July would suggest an extremely unlikely rapid pace of taping.” However, it is premature to name a month at this moment.

Since long, the ECB stated that it will end bond purchases “shortly prior to” increasing its deposit rate by minus 0.5%. Lagarde and her colleagues recently reaffirmed this commitment.

Asset purchases currently run from October to October. However, sources told Reuters that the ECB will likely bring that date forward to its March 10 meeting.

Kazaks also had the option to take action, with eurozone inflation reaching a record 5,1% in January – nearly twice what was required by the ECB for 2%.

The 48-year-old economist stated that if inflation is high, and the labor market continues to strengthen or remain strong, then the direction of the economy is clear. If we can see the economy continuing, we might act earlier than we thought in the past.

Kazaks observed that the key driver for price growth was the wage. However, he saw a growing risk of high inflation in the Euro zone. This would reduce the need to borrow from the ECB.

Kazaks stated that inflation is at an all-time high and there’s a greater risk of persistent inflation. Therefore, it becomes less important to purchase net assets.

He preferred to create a new “roadmap,” which will guide bond buyers in reducing their purchases, rather than setting the pace at each meeting. This would cause “recurrent cliff effect” on the bond market.

The yields of Euro zone government bonds increased across all regions on Monday. Due to Italy’s debt-laden highs, Italian bonds performed amongst the worst. [GVD/EUR]

Kazaks cited a potential conflict between Russia and Ukraine to be the most serious risk to the ECB’s policies.

“If there is a conflict, God forbid. We reassess and adjust the baseline scenario,” he stated.

The money markets forecast a 15-basis point increase in the ECB deposit rate for July and nearly 40 additional basis points in December.

Since 2014, the ECB has maintained a deposit rate of 0%. This means that banks have been charged with overnight storage at the central bank for any cash they don’t use.

Klaas Knot (the Dutch central bank governor) stated that he anticipates the first ECB interest rate hike to take place in the fourth quarter. Francois Villeroy De Galhau, France’s central bank governor, said Friday that the markets should not “rush to conclusion” regarding the timing of any ECB rate rise. Peter Kazimir from Slovakia said however that the ECB will be “wiser” in March if it has more information. [L8N2UF470]