abrdn: ECB blijft achter bij Fed en BoE qua monetaire verkrapping

abrdn: ECB blijft achter bij Fed en BoE qua monetaire verkrapping

January 31, 2022

Central bank Monetary policy ECB
ECB (5).png

Below are two commentaries by Pietro Baffico and Luke Bartholomew from abrdn on this week's ECB and Bank of England meetings.

Pietro Baffico, Economist at abrdn, on the ECB meeting:

"Investors should expect the ECB to confirm its course of gradual monetary policy normalization on February 3rd, and therefore to lag behind the BoE and the Fed in terms of monetary tightening. Policy changes are unlikely next week, following the hard-won decisions in December on the path of net asset purchases, with those under PEPP ending on schedule in March, while leaving the APP with no expiry date for now."

"The ECB might acknowledge a high level of uncertainty regarding the future inflation path, and the flash estimate for the Eurozone inflation rate next Wednesday will provide a new hint. Renewed uncertainties include the impact of the latest Covid-19 wave, as well as pressures from the energy markets. Investors should still consider that the ECB will retain a flexible and data-driven approach throughout this year."

Luke Bartholomew, Senior Economist at abrdn, on the Bank of England meeting:

"We are expecting the Bank of England to hike rates by 25bps next week, and start the process of passively reducing the size of its balance sheet. While Omicron is likely to have taken a dent out of economic activity in December and January, this is likely to be relatively small in the context of past lockdowns and we expect the economy to recover relatively quickly from here. Meanwhile, the labour market seems to have weathered the end of furlough better than even the more optimistic forecasts."

"As such, the Bank is free to focus on inflation, which is clearly a growing concern for all policy makers. While there is little the Bank can do about the short term inflationary pressures brought on by rising energy prices  and supply chain issues, tightening monetary policy should help to keep inflation expectations anchored and prevent higher inflation becoming more deeply embedded in price setting behaviour. This means that rates are likely to increase several more times this year as the Bank signals its inflation fighting intent even in the face of a squeeze on household incomes this year."

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