ING’s Global Head of Macro, Carsten Brzeski, notes that the European Central Bank kept interest rates unchanged and is in no rush to hike, despite war in the Middle East and higher Oil prices. He highlights that the ECB appears on high alert, treating the current energy shock largely as a supply-side issue and preferring to wait for more clarity.

ECB holds fire but sounds wary

"Until a few weeks ago, today’s European Central Bank meeting would have seen a more heated debate on possible further rate cuts. The war in the Middle East, however, has changed everything. Instead of rate cuts, it's now rate hikes that might be on the table again."

"However, judging from the just-announced decision, a rate hike is not imminent. The change in tone and language in the policy announcement points to more uncertainty, but also signalled that – at least for now – the ECB will treat the energy price shock as a one-off, though it'll obviously remain on high alert."

"In any case, at least at first glance, the current situation would qualify as a typical supply-side shock – which shouldn’t necessitate a monetary policy reaction. As much as we believe in ECB magic, the central bank will not be able to end the war in the Middle East or bring down oil prices, unless they have any secret reserves in the basement of the EuroTower that they could sell to Europeans."

"We expect the central bank to talk like a hawk but not to walk like a hawk – or better, to fly like a hawk. At least for now, that is."

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