ECB preview: Downplaying the rise in inflation

We expect no change of policy at the ECB’s March meeting. We expect, however, a clear message that rising sovereign yields are deemed unwarranted at this stage and that the ECB stands ready to ease policy again to counter any further upward move in yields. The increase in inflation since the beginning of the year , and what it implies for the outlook of the ECB’s policy stance , will be another focus of the press conference. We expect President Lagarde to stress the temporary nature of the increase in inflation and that the ECB will “ look through ” higher inflation rates in the coming months . Financial conditions remain very accommodative at this point, providing a clear boost to growth in the euro area and there is consequently no immediate need for ECB action . But the growth outlook remains uncertain and a majority in the Governing Council will prefer to rather err on the side of too much stimulus than too little. The overall tone of the press conference is therefore likely to be quite dovish.