The conflict between Russia and Ukraine forces a change in the ECB’s roadmap

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Posted on March 8, 2022 In Europe, the new economic and market context generated by the Russian invasion of Ukraine has forced the ECB to consider the need to take a new turn and consider whether it is a good time to start tightening its monetary policy . The uncertainty caused by the conflict between Russia and Ukraine could modify the European Central Bank’s roadmap, despite the increase in inflationary pressure, which was 5.8% in February, compared to 5.1% in January and higher than the estimates. After the hawkish turn of the last ECB meeting, the entity will probably be forced to qualify the message and modify the exit schedule suggested in February, without committing too much and leaving full flexibility. However, the medium-term roadmap cannot be other than to get out of the extraordinary monetary policy. The ECB is preparing a response to the current uncertainty and is keeping all its options open ahead of next Thursday’s meeting in order to emphasize optionality and flexibility. Among the surveys consulted there are opinions in which it is believed that the entity will end the PEPP by committing to buy 40,000 million euros in the framework of the PPPs for the next three months and from then on 20,000 million per month, in order to find the way of normalization. Ahead of the hearing, President Christine Lagarde is not expected to focus at this time on the likely rate hike. It is possible that the rate hike, which was what was most likely to be considered before the conflict, will no longer materialize for September, but the rise before the end of the year is on the table, as long as the tension geopolitics decline. Since the maintenance of the purchase program is going to delay the prospects of the first rate hike, the move away from the rate hike and the exit of negative rates should lead the ECB to reconsider the end of the favorable terms of the TLTRO of late June, via increased tiering or extension of the terms of the TLRO. It is important to see how the exchange rate of the EUR/USD pair moved last week, as an inflationary element. We will also have to see the new ECB estimate both on the growth side, with a possible downward revision as a result of the impact of the war and inflation, after the strong increase in energy prices. INFORMATIONTitleThe conflict between Russia and Ukraine forces a change in the ECB’s roadmapDescriptionIn Europe, the new economic and market context generated by the Russian invasion of Ukraine has forced the ECB to consider the need to take a new turn and consider whether it is good time to start tightening its monetary policy. Author GLOBALCAJA

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