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The European Central Bank (ECB) will hold its first general council (GC) of 2022 on February 3. It is an intermediate meeting, so no new economic projections will be published at this meeting, meaning that the ECB is unlikely to announce anything material. Please find below what we expect:
- We expect no change on monetary policy, meaning nothing concerning a new series of targeted longer term refinancing operations (TLTRO) or tiering. It seems premature before June 2022.
- We expect President Lagarde to acknowledge the upward trend in inflation, and thus the need to upgrade significantly its 2022 inflation forecast in March.
- But uncertainty remains high, especially regarding medium-term inflation and growth outlooks, which will, in our opinion, lead the ECB to postpone any significant announcement.
- We expect President Lagarde to say that rate hikes are unlikely in 2022 (vs very unlikely in December statement).
- On the growth side, we expect no change; risks to an economic outlook being “broadly balanced”.
All in all, it might be difficult for President Lagarde not to sound hawkish with inflation expectations skyrocketing for 2022. We believe President Lagarde will try to push back market expectations concerning a rate liftoff but without success. We expect moderate flattening on the Euro swap curve.