Eurozone | ECB’s hawkish shift paves ground for a possible rate hike

The February ECB meeting marked the beginning of a clear hawkish shift in the ECB’s policy outlook. Although the policy stance was left unchanged, the tone of president Lagarde’s press conference showed a heightened level of concern with risks to the inflation outlook now seen as titled to the upside.

What you will learn:

  • Odds of a rate hike in 2022 have clearly risen against this backdrop but one hike (or several as priced by markets) is still not our base case.
  • Lagarde remained committed to sequencing (exiting QE before a possible rate hike), so QE would have to end in Q3 for a rate hike in December. The associated tightening in financial conditions in a still stressed environment may be too much.
  • It appears likely that March’s updated inflation forecasts will show a fairly steep energy-related deceleration in inflation in early-2023.

Topics: Risk, Europe, Eurozone, ECB, Wages, Inflation, Euro, Coronavirus, GDP, Banking, Recovery, Macroeconomics, Inflation risks, Outlook, GDP growth, Energy prices, Omicron

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