MNI: ECB Likely To Look Through Any Ukraine Inflation Spike

The European Central Bank would be likely to look through any spike in inflation prompted by higher energy prices as a result of a conflict in Ukraine, and if markets deteriorate would step in to provide liquidity, though there are no signs of significant stress for the moment, Eurosystem sources told MNI.

“If there is any stress in liquidity for dollars in particular, we may reintroduce the three-month ops, but we are a long way from that and liquidity doesn't look stressed in way, shape or form at the moment,” one source said on Tuesday after Russia ordered troops into eastern Ukraine.

In any event, no policy reaction is likely soon, but, should severe stress occur, major world central banks would probably reaffirm their commitment to euro and dollar swap lines as well as support central European currencies should they require swap support, the official said.

Other sources speaking to MNI before the latest Russian move had identified a surge in inflation driven by energy prices as the greatest risk to the eurozone economy, adding that the ECB would look through any resulting price spike. While sources said equities could come under pressure, they saw less of a threat to peripheral spreads, though safe haven flows could bolster core eurozone bonds.

An ECB spokesperson declined to comment on the matter to MNI.

Also speaking on Tuesday, EU Economic Affairs Commissioner Paolo Gentiloni said that Russia’s moves on Ukraine strongly increases uncertainty around the bloc’s economic outlook.