FRANKFURT (Reuters). ECB President Christine Lagarde stated on Thursday that the European Central Bank had given it “extra room” to accommodate the end of its money printing program this summer as well as the first rate rise in over a decade.

After the Federal Reserve increased the cost of borrowing on Wednesday night, investors were betting on higher ECB interest rates. This was despite the uncertainty arising from Russia’s invasion in Ukraine. [GVD/EUR]

The surge in inflation has caught central banks around the world on the edge of their seats after they spent most of the past decade under the 2% target.

Lagarde, however, repeated last week’s message and said that the ECB will gradually increase its policy rate. This would happen only after it has completed the bond-buying programme. That should take place during the third quarter of this year, barring further financial turmoil.

At a Frankfurt conference, she stated that “this preserves our traditional sequential logic, but also allows us to have extra space if necessary after we cease purchasing bonds and before taking the next step toward normalization.”

The money markets had priced in an increase of nearly 50 basis points in the ECB deposit rate at the close of the year. This would bring it back down to zero, after being in negative territory for eight years.

Lagarde said that the ECB might develop new tools to make sure that monetary policy reaches every corner of the euro area, even though it is cutting back on its bond purchases.

This has helped limit the difference between the borrowing cost of Germany’s top-rated country and that of countries with high levels indebtedness like Italy or Greece.

Lagarde stated that “if necessary” she could design and deploy additional instruments for monetary policy transmission, while we continue along the path to policy normalization.