European Central Bank expected to remain stable as economy slows – .

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Europe has limited direct exposure to the Evergrande debt crisis – .


Christine Lagarde, President of the ECB, speaks at the Bank’s press conference in Frankfurt, Germany.
Boris Roessler | alliance d’images | Getty Images
For a while, central bank watchers expected the October ECB meeting to be relatively uninspiring, but the current mix of slowing growth and higher inflation could make it more eventful than ‘initially predicted.
While major decisions on the future of the European Central Bank’s emergency stimulus package – the pandemic emergency purchase program – are unlikely to be revealed until December, the interests of investors will focus on comments made by bank president Christine Lagarde during Thursday’s press conference.

“We see the possibility for the ECB to continue its pullback against current market prices in its communications during the meeting,” Spyros Adreopoulos, senior European economist at BNP Paribas, said in a recent note.

“The downside to pushing market prices back is that we also expect Christine Lagarde to maintain that the current spike in inflation is largely transient. “

The euro area economy is currently facing multiple adverse economic shocks. Supply chain bottlenecks have created shortages of all kinds of goods and gas prices are at record highs. Despite these uncertainties, the market is currently anticipating a first rate hike from the central bank at the end of 2022.
“The market will be impatient to hear if President Lagarde maintains as strongly as the Chief Economist of the ECB Lane that the timing of the market take-off is incompatible with the new directions, ”writes Mark Wall, chief economist at Deutsche Bank.
Earlier this month, ECB chief economist Philip Lane questioned whether interest rates would rise at the end of next year, given the central bank said it won’t would not increase rates until inflation reaches 2% in the medium term.

“When you look at the market prices of the forward interest rate curve, I think it’s hard to reconcile some of the market views with our fairly clear and straightforward forecast,” Lane said at an event. online, according to Reuters.

Eurozone inflation hit a 13-year high in September, mainly driven by rising energy prices, rising car prices and rising housing costs.

“While the rise in prices of ‘housing’ should be interpreted as [a] “Catching up” with rising prices, rising car prices reflect bottlenecks on the supply side, ”Dirk Schumacher said in a note to customers.

“The September figures provide provisional evidence that the inflation catching-up is one-off and therefore temporary, while price pressure from bottlenecks is not easing just yet. “

Investors will be on the lookout for any indication of a shift in the ECB’s thinking about the nature of the current spike in inflation. So far, the persistent narrative has been that “the current rise in inflation is expected to be largely temporary and the underlying price pressures only build up slowly,” as Lagarde put it. in September. Any change in this assessment could be a real market driver as it would also imply a more hawkish tone within the bank’s Board of Governors.

So far, the majority of economists expect the ECB to adopt a dovish stance in an effort to prevent an unwarranted tightening of financial conditions when the eurozone’s economic recovery slows.

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