Russia-Ukraine war complicates ECB’s rate hike considerations

The Russia-Ukraine war has added to the uncertainties amid which the European Central Bank (ECB) chose to adopt a prudent stance in formulating its agenda for rate hikes, according to minutes released by the central bank.

Commodity prices have surged and energy prices in the euro area have hit record highs since the eruption of the Russia-Ukraine conflict.

“The resulting energy price rise had contributed to a substantial reappraisal by markets of the euro area inflation outlook,” Xinhua news agency quoted the ECB as saying on Thursday.

The central bank announced in March that it would terminate its asset purchase programme, setting the stage for a rate hike under its forward guidance.

However, the minutes released on Thursday indicate that the central bank is prudent and in no hurry to raise interest rates.

The ECB disclosed that the governing council members agreed at their meeting in March to separate the timing of a rate hike from the end date for net asset purchases.

Previously, it had alleged that the net asset purchases would end “shortly before” it started raising key interest rates.

By removing the two key words from its forward guidance, the ECB intended to create “extra space” so that it would assess the situation based on incoming data.

It said that there would be “some time” between the end of the net asset purchase programme and a rate hike.

The ECB announced in March that it would conclude the asset purchase programme in the third quarter this year if its medium-term inflation outlook will not weaken absent the bond-buying programme.

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