MNI ECB Review - March 2023: Cautious, With A Tightening Bias

MNI ECB Review - March 2023: Cautious, With A Tightening Bias

Despite the ongoing financial market volatility, the ECB made good on its prior commitment to hike by 50bp at the March meeting, but steered clear of providing further forward guidance on policy rates, in line with what we were expecting. Despite articulating a data-dependent approach and abandoning rates guidance, we did not interpret the policy decision and the press conference as a dovish shift. The ECB had to be cautious and pragmatic given the unfolding developments in the banking sector, but this does not mean that the ECB’s assessment of the inflation outlook has materially changed, nor that its resolve to restore price stability has weakened. Indeed, President Lagarde stressed during the press conference that “inflation is projected to remain way above our target and for too long” and “if our baseline was to persist when the uncertainty reduces, we know that we have a lot more ground to cover”. Elevated uncertainty prevents pre-commitments on future rate decisions and while intensifying financial stresses would likely motivate a dovish pivot, there is no significant indication at this stage that recent banking sector developments will become systemic.

For the full publication, please see

ECB Review March 2023.pdf