VIEW: Nordea: In Search Of A Sufficiently Restrictive Policy Stance

Nordea note that “The ECB’s May monetary policy account confirmed that the central bank remains pre-occupied with upside inflation risks and despite slowing down the pace of hikes, it was seen as imperative to emphasize that hikes will continue going forward.”

• “The key challenge for the ECB is calibrating the monetary policy stance correctly to bring inflation back to the target in a timely manner without causing undue damage to the economy.”
• “There was naturally a lot of discussion on the inflation situation, and also plenty of different views. A large number of Governing Council members still saw inflation risks tilted to the upside.”
• “There was also a lot of focus on inflation expectations, and a rise in various longer-term expectations to above 2%, which was seen as a clear risk to price stability.”
• “Our view continues to be one of two further 25bp rate hikes from the ECB, in June and July, with risks tilted towards the hikes continuing also after the summer. We think it will require much more than one downside surprise in the inflation data to make the ECB stop its hiking cycle.”