Societe Generale economists Fabien Bossy, Michel Martinez, Anatoli Annenkov and Sam Cartwright argue that the ECB is edging toward discussing early insurance rate hikes after the recent energy shock. They see around 50bp of room before policy becomes restrictive and stress that upcoming PMIs, inflation data, energy prices and financial conditions will be crucial for decisions at the 30 April meeting and beyond.

ECB weighs oil shock and early hikes

"For the ECB to feel comfortable delivering early hikes, it will want to see a clearly larger shock to prices than to growth."

"However, earlier market hikes (than what we have), the spelled out upside risk to inflation and the two adverse scenarios suggest that the bias is for early rate hikes."

"All of this suggests that the ECB may have a bias to move early, at least to an upper end of a neutral policy stance, linked to the memory and embarrassment from 2022 when the ECB started hiking late, when inflation stood at 8.6%."

"We think the ECB has a margin of around 50bp to raise rates before moving clearly into a restrictive policy stance. This would allow an early 25bp insurance hike in April or June, with another following the summer."

"If production shows only a slight impact (that’s our expectation) but prices pressures shoot up, the need for an early hike will be easier to defend."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)