Highlights:

• As expected, at today’s meeting the Governing Council (GC) did not act and just “confirmed the decisions taken at its monetary policy meeting last December”.
• That said, while still defending the transitory inflation view the headache on the back of upside inflation surprises is getting stronger and the policy statement acknowledged that inflation risks are “tilted to the upside”.
• President Lagarde made clear that the March meeting will be pivotal. She refused to reiterate that a 2022 rate hike was “very unlikely” and rather stated that this was contingent on the projection. But she also emphasized that
  QE would be terminated before lifting rates and that the criteria for hiking rates still need to be fulfilled.
• We see a first rate hike in 2023. However, the risk that the GC might be forced into a faster reduction of QE purchases and hike rates in 2022 increased significantly.

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