Worsening inflation situation to push ECB towards an early end of QE

En bref

No policy decisions today but a more hawkish tone: As expected, the GC took no policy decisions at today’s meeting. In contrast to the March 10 meeting, it not only acknowledged uncertainty surrounding the war but also the negative effect on the economy while at the same time expressing more concerns about inflation. Overall, the GC adopted a more hawkish tone with increased confidence that QE will end in Q3 and fuelling key rate hike expectations.
Market Commentary

Highlights:

  • At today’s meeting the Governing Council (GC) took no policy decisions, as expected. But the overall tone was more hawkish than at the previous meeting.
  • The GC acknowledged the negative fallout of the war on activity but stated that “inflation will remain high over the coming months” and that “initial signs of above-target revisions” in inflation expectations “warrant close monitoring.”
  • It became very clear that the June update of the macro projections will very likely reflect this and underline the need for rate hikes. Already today the GC was “reinforced” in its expectation that QE would end in Q3. 
  • At the pivotal meeting on June 9 we expect the ECB to announce an end of QE by July. Further down the road we look for 25 bps rate hikes in September and December of this year.

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Worsening inflation situation to push ECB towards an early end of QE
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