The European Central Bank kept its benchmark interest rates unchanged, as widely expected and stuck to its decision to end the stimulus program in the third quarter of this year but did not provide any further details that disappointed markets, as many expected a hawkish reaction in light of surging inflation that prompted a number of major central banks to start tightening policies.
The ECB’s President Christine Lagarde pointed to growing uncertainty on the war in Ukraine, as the main obstacle, but said that the central bank will maintain optionality, gradualism and flexibility in conducting its monetary policy.
The end of asset purchases could come at any time in the third quarter but without any further information about the timing, as well as no timeframe for when the central bank would start to raise rates, adding that rate hike could occur weeks or even months after the stimulus ends and when the ECB gets there.
Unexpectedly dovish stance suggests that the European Central bank is diverging from its all major peers, as the US Federal Reserve and The Bank of England already started to tighten their policies after nearly three years, with the US central bank leading on expectations for eight or more hikes in next two years. (more…)