abrdn: War makes ECB extra cautious

abrdn: War makes ECB extra cautious

March 4, 2022

ECB War Ukraine
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This is a commentary by Pietro Baffico, Economist at abrdn, on next week's ECB meeting.

While the ECB was shifting towards a normalization of its policies, the ongoing Ukraine crisis and sanctions on Russia will likely reinforce ECB’s cautious approach. The Governing Council will need to assess the trade-off between high and rising inflation, and the negative economic implications from the conflict.

The March meeting is also an important one for markets because the quarterly macroeconomic forecasts are due, revealing ECB’s medium-term inflation outlook. Given high uncertainty, investors can expect the ECB to avoid pre-committing on future rate hikes to retain flexibility.

It will also be important to see if the Governing Council will take into consideration any change to its policy sequencing, or any pledges to ensure the smooth transmission of monetary policy, to safeguard credit risk premia in the Euro area from fragmentation risks.

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