ECB will aim to retain optionality given high uncertainty

It appears to be a forgone conclusion that the ECB council will agree to end its Pandemic Emergency Purchase Programme (PEPP) at its upcoming meeting. Near-term inflation forecasts will see another large upward revision and with several council members worried about upside risks to the outlook, withdrawal of some of the pandemic-related policy support looks warranted.

What you will learn:

• The dovish core of the council has plenty of ammunition to push back against the hawks.
• The new forecast for 2024 is likely to show inflation edging closer to but remaining below target as there is little evidence that structural headwinds to inflation have eased.
• The ongoing Delta wave and risks of a large Omicron wave imply downside risks to near-term growth and inflation.