Kazaks: ECB will continue to decide meeting by meeting, based on incoming data

Additional takeaways

No immediate policy action in April does not imply a looking-through approach to current inflation episode.

Stagflation is not part of the current baseline.

Inflation likely to remain elevated for some time, even if the Middle East conflict were to be resolved quickly.

The longer the shock persists, the greater the risks of second round effects and inflation expectations climbing up.

Preserving anchored inflation expectations is the immediate priority for monetary policy

Large and persistent inflation deviations would not be tolerated under the ECB’s monetary policy strategy.

We are moving away from the March 2026 baseline.

Financial-market inflation expectations remain broadly anchored.

Financial markets have tightened financing conditions, supporting policy transmission, but for sustained effect this needs to be reinforced by monetary policy.

Underlying inflation indicators are stable so far despite external price shocks, while the ECB wage tracker pointed to slower wage growth ahead.

Fiscal policy remains a possible source of additional inflation pressure.

Over time, weaker growth could require policy to move in the other direction if it intensified downward pressure on medium-term inflation.

Market reaction

At the time of writing, EUR/USD is largely flattish on the day, still defending the 1.1700 level.

ECB FAQs

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region. The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

What is Quantitative Easing (QE) and how does it affect the Euro?

In extreme situations, the European Central Bank can enact a policy tool called Quantitative Easing. QE is the process by which the ECB prints Euros and uses them to buy assets – usually government or corporate bonds – from banks and other financial institutions. QE usually results in a weaker Euro. QE is a last resort when simply lowering interest rates is unlikely to achieve the objective of price stability. The ECB used it during the Great Financial Crisis in 2009-11, in 2015 when inflation remained stubbornly low, as well as during the covid pandemic.

What is Quantitative tightening (QT) and how does it affect the Euro?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the European Central Bank (ECB) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the ECB stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive (or bullish) for the Euro.