ECB says inflation surge is transitory, but markets doubt it – Danske Bank
28.10.2021, 15:57

ECB says inflation surge is transitory, but markets doubt it – Danske Bank

On Thursday, the European Central Bank, as expected left its monetary policy stand unchanged. Analysts at Danske Bank point out the meeting ended with no new decisions or a signal about the decisions that are to be taken at the December meeting.

Key Quotes: 

“We are of the view that ECB do not expect to hike rates in the foreseeable future given ECB transitory inflation narrative. Whether this new found data dependence will last remains unknown. In any case, if inflation proves longer-lasting, the comments today makes us less confident that ECB would not change policy rates eventually.”

“While inflation is expected to stay high in the near-term (lasting a bit longer than previously expected), ECB still expects inflation pressures to ease again over the course of next year.”

“With Spanish and German CPI inflation surging to the highest level since the 1990s in October and price expectations still adjusting upwards across sectors, markets are increasingly discounting ECB’s temporary inflation narrative.”

“Despite Lagarde’s very dovish signals and overall appearance, EUR/USD followed the rates market higher. In our view, this is likely a temporary correlation and likely to soon be replaced by more downside risk as the European economy underwhelms amid inflation surprises. We do not generally see much of a link between spot EUR/USD and rising expectations towards euro area interest rates.”
 

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