Deutsche Bank previews the upcoming ECB meeting, arguing that policy is very likely to remain unchanged on 19 March despite heightened uncertainty from the Middle East conflict and higher energy prices. The bank highlights contingent inflation risks, especially under an adverse energy scenario, and expects the ECB to stress flexibility, upside inflation risks and a strong commitment to maintaining price stability.
Policy steady as inflation risks reassessed
“We think it is highly unlikely the ECB changes policy on 19 March.”
“We expect the ECB to acknowledge increased uncertainty and upside risks to inflation in the near-term; acknowledging upside risks in the medium term would be more hawkish and will require more data.”
“Oil at USD80/bbl and gas at EUR50/ MWh would imply moderate and transitory shock, not one that justifies a monetary tightening unless inflation expectations threaten to de-anchor.”
“In an adverse scenario, we assumed energy costs roughly 50% higher (oil USD120/bbl, gas EUR75/MWh). The risk of an inflation problem would be much higher.”
“We expect the ECB to reiterate the flexibility it has within the current policy stance to adjust policy as soon as necessary.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)
Source: https://www.fxstreet.com/news/ecb-policy-on-hold-with-inflation-risks-deutsche-bank-202603121437
