2022-02-03-牛津经济研究院-Eurozone_ECB_s_hawkish_shift_paves_ground_for_a_possible_rate_hike_3页_199kb

ECB's Policy Shift Towards Hawkiness Amid High Inflation Concerns

The February 2022 ECB meeting marked a significant move towards a more hawkish policy stance, driven by heightened inflation risks. ECB President Lagarde and other officials expressed greater concern over upside risks to inflation, which has risen sharply due to energy prices, supply constraints, and global factors. While policy remains unchanged for now, the tone signals preparation for potential tightening measures, including the end of quantitative easing (QE) and adjustments to nonconventional tools.

Key points from the analysis include:

• Inflation expectations have surged, with odds of a 2022 rate hike rising, but this is not the baseline case. Lagarde emphasizes data dependency and optionality for policy, potentially leading to accelerated tightening later this year.
• The ECB is likely to tighten financial conditions through mechanisms like tighter TLTRO conditions or faster tapering of asset purchases under the APP, but a full rate hike this year remains unlikely.
• Uncertainty persists due to recent forecast errors, structural headwinds, and the possibility that high inflation is temporary, tied to supply issues rather than sustained demand pressures.
• The January inflation surprise (5.1% for the Eurozone) reinforced the need for caution, prompting a shift in rhetoric but not growth outlook, which remains subdued due to Omicron.
• Despite the hawkish tone, the ECB's underlying inflation assessment is still cautious, as core inflation shows no clear slowdown, and wage dynamics lack strong signals for second-round effects.
• The analysis concludes that while policy tightening is increasingly likely, disinflationary factors could delay action, and the ECB may not act on this year's rate hike until more evidence emerges.

Overall, the ECB is positioning itself for a data-dependent approach, with March expected to bring updated inflation forecasts and decisions on policy adjustments.