Going into the ECB meeting the focus was always going to be on inflation. The ECB had held a pretty steady hand in their view that inflation was transitory and that the ECB saw no reason to act. However, at the last meeting, there were three aspects which revealed the concern that the ECB now has around inflation and that the only way is up here for interest rates.

United front on inflation

Christine Lagarde revealed that the ECB’s Governing Council had unanimous concern surrounding rising inflation. The hawks, doves, and even the owl were all in agreement.

2022 rate hike not ruled out

In the press conference, Christine Lagarde dodged the questions about whether a 2022 rate hike would be appropriate. The fact she did not deny it, when previously she has pushed back against the suggestion of hikes, spoke volumes. An ECB sources pieces later confirmed that the ECB agreed it was ‘sensible’ not to exclude a 2022 rate hike.

The ECB made its concern clear in the statement

The final sentence of the ECB rate statement was changed from “The Governing Council stands ready to adjust all of its instruments, as appropriate and in either direction to ensure that inflation stabilises at its 2% target over the medium term” to “The Governing Council stands ready to adjust all of its instruments, as appropriate to ensure that inflation stabilises at its 2% target over the medium term”.

The omission of the phrase ‘and in either direction’ shows that the ECB is now only concerned about rising inflation. The only way is up. President Lagarde has appeared to suggest that the ECB’s March’s meeting will give us an update on any rate hikes coming for 2022. The net result is that this was a hawkish meeting and we should see the EUR gain against the GBP in the near term. Goldman Sachs now expect the ECB to hike 0.25% in September and the ECB to decide in March it will end its APP purchases in June.