The European Central Bank (ECB) has moved from a delicate situation to an impossible situation. Officially, his mandate orders him to keep inflation around 2%. With a price increase of 5.8% in the euro zone as a whole in February (and even around 14% in Lithuania, 12% in Estonia, 10% in Belgium, etc.), the ECB is not at fault. all.
Before the invasion of Ukraine, the Frankfurt institution had therefore warned: it was going to announce, during its meeting on Thursday, March 10, a gradual withdrawal of its economic support. Currently, it injects around 60 billion euros per month into the markets. This rate was going to reduce rapidly, perhaps to zero by the summer. Then, probably before the end of the year, an increase in its interest rate (currently -0.5%) was possible.
The Ukrainian clash changes everything. It will add inflation, but also reduce growth. For the ECB, withdrawing its support now would risk stifling the economic rebound, fragile after two years of the Covid-19 pandemic. “The ECB is caught between two risks: either it raises its rates too early, or it risks letting a price-wage loop develop”, explains Eric Dor, director of research at Iéseg, a business school.
Government intervention
The European Central Bank’s hope is that the inflation shock will eventually subside on its own by the end of the year, when energy prices stabilize. But it has been counting on such a scenario for almost a year, each time postponing the date on which prices will begin to calm down. And the war in Ukraine may make us fear the worst: JP Morgan economists speak of a barrel of oil around… 185 dollars (170 euros) by the end of the year, which would be a historic record ( it was close to $120 on Friday, March 4).
Faced with the absolute vagueness of the situation, George Buckley, of the Nomura bank, believes that the wisest thing would be not to announce anything this Thursday: “The ECB’s plans are likely to be frozen for the time being. » The other central banks are also caught in a pincer movement. In the United States, the Fed, which announced a long-standing rate hike at its March meeting, should comply. But Jerome Powell, its president, spoke on Wednesday March 2 of an increase of a quarter point (the rate is currently just above zero) instead of half a point, as previously envisaged.
The Bank of England, which has already made two increases since December, should continue its momentum in March. But it should stop in a few months at a rate of 1%, instead of 1.75%-2% as expected so far, according to Andrew Goodwin of Oxford Economics.
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