ECB stand pat on rates

Frankfurt (Feb 3)  The European Central Bank (ECB) stoop pat as expected. 

The ECB says it expects net purchases at the end of March 2022. The central bank will not raise interest rates until purchases are finished.

The build-up to the ECB interest rate announcement today had markets pricing in an almost 100% probability of holding rates.

Key note from the ECB statement:

"In support of its symmetric 2% inflation target and in line with its monetary policy strategy, the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2% well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at 2% over the medium term. This may also imply a transitory period in which inflation is moderately above target."

The focus of much of the analyst commentary was the ECB committee's stance on inflation. It is not likely for the central bank to give any hints on possible rate hikes. It is highly unlikely that we'll see any new policy announcements. Recently, the inflation narrative has shifted from calling the surge in prices temporary and warning against too-low rather than too-high inflation in the medium term, to a doubling of its 2022 inflation forecasts and warning against upside risks to price stability. The markets will look to see if this changes back or the central bank doubles down on the shift. 

Societe Generale said “The first meeting of the year will offer a chance to reflect on both the past year and challenges ahead, although the potential impact of escalating tensions between Russia and Ukraine will no doubt need to be discussed. If tensions deepen, resulting in disruptions in energy supply to Europe, we expect the ECB to turn increasingly dovish, focusing on the impact on growth and financial stability, despite likely higher energy inflation in the short term. These concerns aside, the ECB has rapidly gone from being happily behind the curve to genuinely concerned about the persistence of high inflation. Such concerns are unlikely to dissipate rapidly, with upside risks also dominating in the medium-term. For now, we think the ECB will stick to its strategy, and only tighten further once signs of wage acceleration emerge.”

KitcoNews