No Surprises Expected For ECB In February

Analysts from Rabobank expect no surprises from the European Central Bank at its February meeting. They expect 2022 to bring a reversal of pandemic policies, but not a broader tightening of policy.

Main Quotes:
“The ECB has recovered some policy flexibility in December, but this comes at the cost of some uncertainty and continued market speculation that the ECB will hike rates sooner rather than later. We expect the ECB to stick to its script of transitory inflation, which means that 2022 should only see a reversal of pandemic-related tools, and not a broader withdrawal of monetary accommodation aimed at achieving the inflation goal.”

“While the outlook remains very fluid, we therefore believe that it takes a lot of stars to align before the ECB’s baseline is realized, let alone exceeded, in terms of wage-driven inflationary pressures. And downside risks remain abundant. Most notably, we believe that cost-push inflation could still have a detrimental impact on future consumption and hence medium-term inflation. And the geopolitical environment may further exacerbate the energy price shock, if tensions with Russia escalate.”

“Inflation is still more likely to nip demand in the bud before wage growth gets enough room to accelerate sharply. We therefore maintain our call that 2022 will only see the reversal of pandemic-specific stimulus measures and we do not expect the ECB to turn into a more general inflation hawk.”