ECB Review: April 2022

Despite the distinct possibility of announcing a firm end-date for the APP at the April meeting, in the end the ECB largely reiterated the normalisation path set out in March. This suggests that despite its peers turning more hawkish, the ECB continues to believe that economic circumstances in the euro area are unique and require a different approach. It also suggests that data dependence has taken on a particular prominence at this juncture, with the lack of sufficient data since the last meeting underpinning the ECBs decision not to take further action at this stage.

While President Lagarde highlighted the downside risks to economic growth as a result of the war in Ukraine (further motivating a gradual approach to normalisation, and also posing a risk of delayed normalisation), inflation concerns remain at the forefront. Specifically, Lagarde stated that “upside risks surrounding the inflation outlook have also intensified, especially in the near-term” and that ‘while various measures of longer-term inflation expectations derived from financial markets and from expert surveys largely stand at around two per cent, initial signs of above-target revisions in those measures warrant close monitoring’. And while an end-date for the APP was not announced at the April meeting, Lagarde nonetheless stressed that the Governing Council "judged that the incoming data since its last meeting reinforce its expectation that net asset purchases under the APP should be concluded in the third quarter".

Finally, President Lagarde provided some indication that a new tool could be developed to tackle fragmentation risks should they arise. Lagarde did not want to be drawn into specifics – such a tool may still just be in the general conception stage – but it is nonetheless clear that the ‘gradualism’, ‘flexibility’ and ‘optionality’ descriptors are central to the design of monetary policy going forward.

For the full publication please see:

ECB Review April 2022.pdf