News

ECB meets as invasion of Ukraine complicates path to higher rates

© Reuters. FILE PHOTO: Workers maintain the huge Euro logo in front of the headquarters of the European Central Bank (ECB) in Frankfurt, December 6, 2011. REUTERS/Ralph Orlowski

By Francesco Canepa

FRANKFURT (Reuters) – European Central Bank policymakers are gathering on Thursday for what may have suddenly become a crisis meeting as Russia’s invasion of Ukraine threatens to derail economic growth in the euro zone and complicate the ECB’s path out of negative interest rates.

The ECB’s policymaking Governing Council had been due to gather in Paris at lunchtime on Thursday for an “informal get-together”.

This was aimed at preparing a decision on March 10 on the likely end of the ECB’s bond-buying stimulus programme and pave the way for the first rate hike in more than a decade to tackle surprisingly high inflation.

But Russia’s invasion of Ukraine overnight has changed the picture by raising the prospect of higher energy costs, financial turmoil and lower trade for the euro zone.

This was likely to lead to an immediate spike in energy prices followed by lower economic growth and inflation for the euro zone, which relies on Russian gas for 40% of its needs.

ECB policymaker Yannis Stournaras was the first to ring the alarm bell, saying in a Reuters interview published on Thursday that the central bank should continue buying bonds at least until the end of the year to counter deflationary effects in the medium to long term from a Ukraine conflict.

Analysts concurred.

“It will make the ECB more cautious and may delay the decision on tapering bond purchases,” said Frederik Ducrozet, a strategist at Pictet.

Daiwa Capital Markets’ head of research Chris Scicluna agreed that the Ukraine crisis “would slow the pace of (ECB policy) normalisation”.

ING economist Carsten Brzeski added the ECB may now stop short of putting a firm end date on its Asset Purchase Programme on March 10.

No decision was expected at Thursday meeting, which is scheduled to start with a lunch and end at around 10pm (2100 GMT), before a gathering of European Union finance ministers the following day.

The ECB had not shared a meeting agenda with policymakers but these were expected to discuss the economic outlook, their next policy moves as well as some operational matters.

This has now changed, with the Ukraine crisis likely to dominate the discussion.

“This is now something completely different,” ING’s Carsten Brzeski. “It takes away the pressure for the ECB to rush into action.”

ECB meets as invasion of Ukraine complicates path to higher rates

Disclaimer:Fusion Mediawould like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

Leave a reply

Your email address will not be published.

More in:News