The European Central Bank (ECB) kept its monetary policy unchanged after the Board meeting, as expected. According to analysts from Rabobank, in contrast to some of its peers, which are no longer taking their chances with inflation, the ECB showed that it still intends to run its own show, in its own pace and on its own terms. The overall ‘well-considered and balanced’ tone of the press conference does further expose it to marketbased risks, notably a weaker currency and/or higher inflation expectations, they explained.
Key Quotes:
“The Council’s assessment of the impact of the war has clearly -and logically- evolved since the March meeting. Although it wasn’t said in so many words, the assessment that President Lagarde presented today suggests that the ECB has at least mentally updated its main scenario from the March baseline to an outlook that is more in line with what it then still called the ‘adverse’ scenario.”
“It looks like the Council will continue with its ‘normalisation’, but today suggests that this will not happen at the pace that the market expected to see. The ECB is still trying to take a considered approach, and trying to find the right balance between growth and inflation risks.”
“Despite the markets’ disappointment, we do believe that today’s meeting was designed to further instil the notion that the end of net asset purchases will be announced in June. In fact, it sounded like the decision to end purchases was all but made, and that mainly the exact end date was still up for discussion.”
“We therefore bring forward our expectations for rate hikes to September and December, albeit somewhat reluctantly if we look at today’s indecisiveness. That said, whether the ECB starts its lift off in September or December, we still believe that too much tightening has been priced into money markets between now and end2023.”
