Rabobank strategist Molly Schwartz highlights that the Eurozone is already economically exposed to the conflict via higher energy prices. European Central Bank (ECB) officials at the ECB and Its Watchers Conference struck a cautious tone, stressing data dependence on April rate decisions and uncertainty over how persistent the inflation shock from the conflict will be, particularly through energy pass-through.

ECB cautious on inflation shock

"Whether Europe views the conflict as its war or not, it is already implicated via the economic channel. Several ECB policymakers spoke yesterday at the ECB and Its Watchers Conference, striking a cautious tone as they assess how large and persistent the inflationary shock from the conflict may be"

"Kazaks said it remains “unclear” whether rate hikes in April are justified, but warned that risks could intensify if energy prices meaningfully pass through into other components."

"Lagarde echoed this data‑dependent stance. “We will not act before we have sufficient information on the size and persistence of the shock and its propagation,” she said, “but we will not be paralyzed by hesitation: our commitment to delivering 2% inflation over the medium term is unconditional. She underlined that April is a “live” meeting."

"Market pricing of the European OIS curve implies close to 16bp of hikes in April, but nearly 65bp of cumulative hikes by the end of 2026."

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