An extraordinary meeting of the European Central Bank (ECB) is scheduled for this Thursday: The central bank actually wanted to announce the tightening or, as it says itself, the “normalization” of its monetary policy on this day.

On this day there should be new forecasts for the medium-term development of inflation, on which the central bank bases its monetary policy.

If these inflation numbers were then no longer significantly below their target of 2 percent, which everyone assumes, then the ECB could have let its bond purchases end in September and “shortly” afterwards, it was said, also raise the key interest rate.

Christian Siedenbiedel

Editor in Business.

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But that was planned before Russia attacked Ukraine.

Now there is the terrible war.

And with it the concern that the economy in the euro zone could be exposed to more serious upheavals.

This could mean “stagflation”: very weak economic development combined with high inflation due to the energy price shock.

"Individual representatives of the Governing Council of the ECB no longer wanted to rule out a stagflation scenario for the euro zone," says Christian Reicherter, analyst at DZ Bank: "We think it is quite likely that these fears with a view to the current and coming quarters become reality.”

Record inflation rate

In any case, it means more uncertainty - and members of the ECB Council such as the French central bank chief François Villeroy de Galhau are therefore calling for more "optionality", i.e. the ECB should keep more leeway.

The head of the Greek central bank, Yannis Stournaras, even advocates staying on the old course for the time being – and buying more bonds at least until the end of the year.

How will the ECB decide now?

Is it putting the normalization of monetary policy on hold?

Or does it only postpone certain steps?

The ECB observers in the banks are divided as rarely.

However, they agree that the ECB will probably not initiate normalization as originally planned.

But it is also very unlikely that she will cancel it altogether.

"We continue to consider the gradual normalization of monetary policy to be the more likely scenario because of the record high inflation rate," says Michael Schubert from Commerzbank.

"However, the ECB Governing Council is likely to keep a back door open in order to be able to react to short-term turmoil in the financial markets and an energy crisis that cannot be ruled out."

Frederik Ducrozet of Bank Pictet takes a similar view: “Even before the Russian invasion of Ukraine, the ECB was faced with a difficult compromise – and recent developments will make the situation much worse in the short term.”

Rate hikes controversial this year

The financial markets have become more cautious with regard to possible interest rate hikes.

"I no longer expect the ECB to raise interest rates this year," says Christian Keller, chief economist at Bank Barclays in London.

Europe's central bank will now emphasize the need to remain flexible even more.

However, Keller does not see any major upheavals: "The sanctions will have an impact on Russian banks and the ruble," he said.

"But a new financial crisis is not to be expected, the links between the Russian banks and the rest of the banking system are too small." The economist believes that the economy and monetary policy in Europe and America are now likely to drift apart more:

Observers expect that the ECB will let its crisis bond program PEPP expire in March as planned.

He assumes so, said Andreas Billmeier, European economist at Western Asset, part of the Franklin Templeton fund company.

With regard to possible interest rate hikes, she will probably not commit herself on Thursday.

It is disputed whether the central bank will announce an end to all bond purchases.

Commerzbank says the central bank could announce an end to bond purchases for the summer, but reserve the right to resume.

There is also speculation as to whether the ECB will drop the word “shortly” in its announcements between the end of bond purchases and possible interest rate hikes – as a small sign that it may take some time before interest rates rise after all.