ECB officials disagreed over Bloomberg’s response to the outbreak of war in Ukraine

© ECB officials disagree over response to the outbreak of war in Ukraine (Bloomberg) — European Central Bank officials meeting last month were divided on how to respond to the economic shockwaves of Russia’s invasion of Ukraine . While some pushed for a firm end date for asset purchases and an opening for a rate hike in the third quarter on the deteriorating inflation outlook, others preferred a wait-and-see attitude amid exceptionally high uncertainty, according to one of the policy meetings. of March 9-10 from the ECB published Thursday. Some policymakers argued that “maintaining optionality in asset purchases was not without costs, especially given the risk of ‘falling behind’,” the bill found. Others warned that in the new environment “daring steps were even less justified” than in the pre-war situation and “could further erode confidence”. Faced with the fastest inflation since the introduction of the euro, the ECB surprised markets last month by charting a faster exit from asset purchases. The question now is how quickly historically low interest rates will increase after the end of net bond purchases, while monetary tightening cycles are already underway at other major central banks. Some members of the Board of Directors are pushing for two increases by the end of the year. Others are more cautious, while the economic implications of the war remain unclear. They will then meet in Frankfurt on April 13-14. Risks to the inflation outlook from the conflict “were viewed as largely one-sided, with experience suggesting that wars tended to be inflationary,” the bill said. But there were “different opinions” about how persistent the recent price hike would be. The economic projections presented at the time showed that the euro area economy would grow by more than 2%, even if the outcome was unfavorable. “While the war was likely to affect economic growth in the near term, annual growth was expected to remain positive even in the severe scenario, suggesting ‘slowflation’ rather than stagflation,” the report said. ©2022 Bloomberg LP

Leave a comment