What will it take for the ECB to make a dovish pivot?

We have long been expecting a dovish pivot from the ECB at the turn of the year as supply-driven core inflation begins to ease quickly. The recent additional surge in gas prices, turmoil on the wholesale electricity market, the ECB’s unwavering focus on inflation and increasing recessionary signals have added risks to either side of our call. But, overall, they suggest the risks have shifted clearly towards a more delayed pivot and a more frontloaded intervention by the ECB.

What you will learn:

• In light of those dynamics and our planned growth and inflation forecast changes, we have revised our policy call.
• The ECB’s new inflation-focused reaction function makes the timing of the pivot tricky. Sharply slowing growth alone won’t suffice.
• While the ECB acknowledges the recession risks, for now it appears to retain a laser focus on “uncomfortably high” inflation and high inflation expectations.