ECB opts for the path of least resistance – Quilter’s Paul Craig comments on today’s monetary policy decisions

by | Mar 10, 2022

Following the latest ECB decision  on monetary policy, Paul Craig, portfolio manager at Quilter Investors comments on today’s announcement:

“Given the ECB has been so far behind the curve when it comes to tightening policy, the last thing it would have wanted to be contending with was a further inflationary shock. This is precisely what has happened with the Russian invasion of Ukraine, and inflation in the Eurozone is now forecast to be higher for longer.

“In contrast to the Fed and the Bank of England, which have either increased rates or signalled that they will hike in the very near future, the ECB has so far been holding fast, though it was expected that a hawkish move would be signalled at this meeting.

“The balancing act faced by the ECB is an extremely challenging one. On the one hand, the bloc is faced with an inflationary shock that requires quick and decisive action. On the other, the attempted Russian invasion of Ukraine has cast a shadow of uncertainty over Europe that could end with weak demand and recession.  

“So the ECB has opted for the path of least resistance, and will take a middle ground by announcing a gradual reduction in asset purchases while avoiding a firm commitment on the eventual end date. This provides them with a path to policy normalisation while at the same time retaining some flexibility to respond to a changing macroeconomic landscape.”

 

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