FRANKFURT, April 14 — The European Central Bank kept its policy stance broadly unchanged today, sticking to plans to slowly unwind extraordinary stimulus as worries over record-high inflation trump concerns about a war-related recession.
Interest rates will, however, only go up “some time” after the end of bond buys and they will be gradual, the ECB added. “Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual,” the ECB added. On the one hand, inflation is already at a record-high 7.5 per cent, with further increases expected. On the other, the euro zone economy is now stagnating, at best, with the impact of the war hurting households and businesses across its 19 countries.
Acknowledging these concerns, ECB President Christine Lagarde could still signal more firmly that support will be rolled back in the coming months. Markets are now pricing in a combined 70 basis points of hikes in the ECB’s minus 0.5 per cent deposit rate this year, even though not one of the ECB’s 25 policymakers has called for such aggressive tightening.Energy prices driven higher by the Ukraine war are draining household savings and uncertainty caused by the conflict is halting corporate investment. Banks are also tightening access to credit as they naturally do during wars, potentially exacerbating the downturn.
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