BCE | Policy Was Left Unchanged At Today’s Meeting


Allen Goves (MFS Investment Management) | Policy was left unchanged at today’s meeting, as widely expected, yet despite rising inflation. This is because of the ECB’s stress that the current rise in inflation is likely to be transitory. Growth is still considered strong but is moderating and risks are broadly balanced.

This meeting was perhaps characterized by its emphasis on inflation drivers. Importantly, the ECB continues to stress that many of the current drivers for rising spot inflation are largely transitory. Lagarde elaborated on base effects, bottlenecks and energy prices to support this view. All things equal, this should see inflation move back to target in 2022, even if it might now take a little longer than first envisaged.

Perhaps the most interesting takeaway from the October ECB is the interplay between the ECB’s guidance and its inflation outlook compared with market policy rate expectations. Lagarde referred to a disconnect, which in our view, is unlikely to last forever. Either the ECB hikes in line with market expectations or it doesn’t. In terms of QE policy evolution, we continue to look at the December meeting as a more pivotal juncture for asset purchase developments. For now, policy remains steady.

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