ECB rhetoric fine-tuning raises concerns about monetary policy shift

2022-07-22 0 By

Frankfurt, Feb. 3 (Xinhua) –The European Central Bank (ECB) kept monetary easing unchanged at its monetary policy meeting Thursday despite eurozone inflation hitting a record high.Market analysts believe that the ECB will continue to maintain the current monetary policy, but related language fine-tuning sends a “hawkish” signal, will bring more volatility to financial market trends.Judging from published monetary policy decisions, the ECB remained on hold, but removed the phrase “stands ready to adjust all its policy instruments in both directions, as appropriate, to ensure stable inflation at 2 per cent over the medium term”.At the same time, European Central Bank President Christine Lagarde said at a press conference on the same day that the ECB’s decision will be based on data when asked about the prospect of raising interest rates this year.The last time she faced such questions, Ms Lagarde stressed the prospect of a rate rise in 2022 as “very unlikely”.This fine-tuning was interpreted by investors as a sign that the ECB is no longer ruling out the possibility of raising interest rates this year, and the policy tone is shifting from “dove” to “hawk”, causing considerable volatility in financial markets.In foreign exchange markets, the euro rose strongly against the dollar, hitting a year high.Eurozone government bond yields surged, with German and Italian 10-year yields rising about 10 basis points and almost 23 basis points respectively on the day.Meanwhile, European stocks extended their losses significantly, with Frankfurt’s DAX and the Euro Stoxx 50 both closing down more than 1.5 percent.Analysts generally agree that pressure is building for the ECB to exit its easy monetary policy amid persistently high inflation and growing expectations of a Federal Reserve rate hike.Carsten Brzeski, head of macro research at ING, noted that the ECB’s latest statement reintroduced the “upside risks to the inflation outlook” phrase, which had not been used for years, and That Lagarde’s comments also left the door open for a rate hike this year.Jorg Kramer, chief economist at Commerzbank, expects consumer prices to continue rising sharply in the coming months.”It is time for the ECB to recognise that inflation risks have increased significantly and take its foot off the accelerator,” he said.It should follow the Fed and end net [bond] purchases and raise rates as soon as possible.”According to Frederic Dikrosser, economist at BTG Asset Management, many professional investors are already pricing in “a big hike in the ECB’s inflation forecast in March, the end of net asset purchases in the third quarter, and a rate hike in the fourth quarter.”(after)